What the world got wrong about tariffs | DW Business

Key Concepts:

• Tariffs: Taxes on imported goods.
• Reciprocal Tariffs: Tariffs imposed in response to another country's tariffs.
• US Dollar Index: A measure of the value of the U.S. dollar relative to a basket of foreign currencies.
• Intermediate Goods: Goods used as inputs in the production of other goods.
• Trade War: An economic conflict where countries impose tariffs or other trade barriers on each other.
• Dollar Depreciation: A decrease in the value of the U.S. dollar relative to other currencies.

How Tariffs Are Supposed to Work:

• Goal: Protect local jobs and boost local production by making imports more expensive.
• Mechanism: Tariffs increase the price of imported goods, reducing their competitiveness compared to domestically produced goods.
• Expected Outcome: Fewer imports, increased demand for local products, and a stronger local economy.

The Reality of Trump's Tariffs (2025):

• Dollar Depreciation: Contrary to expectations, the US dollar has significantly depreciated. The US dollar index started 2025 at 129 points and fell to 120 by June, the steepest first-half drop since the early 1970s.
• Loss of Confidence: The dollar depreciation is attributed to a loss of confidence in US economic policy.
• Continued Imports: Despite tariffs, the US continues to import heavily.
• Increased Revenue: Tariffs have generated substantial revenue for the US government. In 2024, tariffs brought the US nearly $50 billion in revenue in the first half of the year. In 2025, the number doubled to $100 billion. Treasury Secretary Scott Bezant expects the number to exceed $300 billion by the end of 2025.
• Consumer Burden: The revenue is essentially a tax increase paid by US consumers and businesses.
• Job Creation Slowdown: Job creation has slowed down significantly. May saw 144,000 jobs added, followed by 147,000 in June. However, the July report showed only 73,000 jobs created, and previous figures were sharply revised downwards (June to 14,000 and May to 19,000).

Arguments Against the Effectiveness of Tariffs:

• Tariffs as a Tax: Tariffs act as a tax on consumers and businesses, increasing the cost of goods.
• Impact on Intermediate Goods: Tariffs on intermediate goods make US businesses less competitive. A majority of US imports are intermediate goods.
• Historical Examples of Tariff Failures:
  • 1980s Sugar Tariffs: Led Coca-Cola to switch to high fructose corn syrup due to increased sugar prices.
  • 2002 Steel Tariffs (George W. Bush): Resulted in job losses and lower profits in steel-dependent industries like auto and construction.
  • Trump's First Administration (Trade War with China): Increased costs and slowed down US exports.

Current Situation (2025) Compared to Previous Trade Wars:

• Wider Scope: The current tariffs are broader, affecting a larger volume of trade. Tariffs are raised to an average of about 19% for all trade.
• Higher Consumer Impact: Consumers face a significantly larger price increase (estimated at $2,500 extra per consumer) compared to previous trade wars.
• Greater Shock to Producers: Producers face higher input costs regardless of their sourcing location.

Conclusion:

The Trump administration's tariffs, while generating revenue, are having negative consequences, including dollar depreciation, increased costs for consumers and businesses, and a slowdown in job creation. Historical examples and the current situation suggest that tariffs can backfire, harming the economy rather than protecting it. The long-term effects of these tariffs are still unfolding, but the initial data indicates a failure of the policy.