In Part I and Part II of this series, we looked at research showing that Americans are bearing the burden of Trump’s trade taxes.
Those findings are a useful antidote to Trump’s silly and illiterate claim that foreign companies are swallowing the added cost.
In both of those columns, however, I pointed out that I’m more concerned about the macroeconomic damage of Trump’s tax increases on trade.
So in Part III of this series, let’s look at some fresh evidence about the economic impact of trade taxes published by the National Bureau of Economic Research.
The study, authored by Tamar den Besten and Diego R. Känzig from Northwestern University, finds that protectionism causes considerable damage.
This paper studies the macroeconomic effects of tariffs using long-run U.S. historical data. …We find that tariff increases are contractionary. A one-percentage point increase in the average tariff rate leads to a sizable and persistent decline in real GDP, accompanied by sharp reductions in imports, exports, and manufacturing output. These responses run counter to the protective intent of tariffs and highlight the importance of general-equilibrium effects: while imports fall as intended, exports and domestic production decline as well, weakening aggregate economic activity rather than redirecting demand toward domestic producers. …Overall, the evidence implies that tariff increases depress economic activity and trade once their indirect and general-equilibrium effects are taken into account. The historical record suggests that the aggregate consequences of tariffs depend not only on their direct impact on import prices, but also on exchange-rate adjustment, foreign responses, and the monetary environment.
For readers who like visuals, here’s Figure 3 from the report.
Pay special attention to the third chart of the right column. You’ll notice that protectionism has a negative impact on manufacturing.
This research is hardly a surprise.
We’ve already seen that Trump’s trade taxes in 2025 have not worked, even when looking at his preferred (but wrong) measure of success.
I’ll close by expressing happiness about the Supreme Court’s ruling this morning against Trump’s arbitrary trade taxes. But I don’t want to celebrate this libertarian legal victory too much because I fear that Trump will simply re-impose tariffs using some other bit of trade law. Which means more economic uncertainty and further legal cases that will take months – or even years – to decide.
The bottom line is that Trump is causing destruction, but not the right kind.
