It is broadly recognized that there are essential sectors of the economy generally, and the manufacturing sector in particular, which merit special protections in support of the national interest. The question is, are tariffs the best way to provide these protections, or should we be considering alternative approaches?

The stated or implied goals for the recent tariffs are;

- to grow the manufacturing sector of the US economy,

- and/or to serve as a means to leverage the US position as the world’s largest consumer of goods to negotiate a better trading structure for the US

Improving the balance of trade with our partners would seem to be more than an implied goal of the current policies. As evidence, consider the fact that the most significant variable in the formula used to establish the tariff rates for each nation is the trade deficit of the US with each nation. While the notion of selling more than we buy from each if these trading partners is an appealing one, the fact that the US economy is the worlds largest, and is driven by consumption, suggests that this goal is challenging, to say the least. 

This goal of improving the US balance of trade might be achieved through greater access to world markets resulting from a reduction in tariffs on US exports, or greater regulatory access to these markets, or through negotiations with individual nations or regional groupings of allied economies. Perhaps the ideal way to improve the ratio of the value of what we export to what we import is through increasing productivity in order to drive down the costs of the goods and services that we produce. This has always been a hallmark of the US economy, but it relies on innovation and investment to achieve this.

In the specific case of the manufacturing sector, tariffs pose a particular threat. With its need for advanced planning, a deeply interwoven supply chain for the components needed to build machinery, and significant build times for the finished product, the uncertainty of rapidly changing tariffs stifles investment. The ability of American industry to advance capacity, capability, and productivity is hobbled by the inability to calculate a reliable ROI.

The short-term costs of tariffs are pretty well known and agreed upon. They are higher prices and slower growth for the economy writ large. In order to achieve the stated goals, the tariffs would have to remain in place for a very long time in order to reorient supply chains and manufacturing centers. The leaders of both industry and other nations would have to believe that they remain in place for many years in order for them to have the desired effect. Providing a definitive set of policies would enable manufacturers to make sound decisions around strategic planning and capital investment.

Clearly, policies that can grow the US manufacturing base, and improve the US balance of trade, are worth pursuing, but not if the approach leads to a pyric victory which results in poor partner relations and a worldwide recession. There are already efforts around the world to realign trade relations in order to mitigate any losses from exports to the US.

A broader debate concerning the efficacy of the tariff approach versus other tools for boosting domestic industry, including subsidies, tax breaks, and targeted (de)regulation is in order. Involvement of a broad group of experts from government, and each of the economic sectors is merited given that the evolving situation is likely to have an enormous impact the US economy, as well as economies around the world. Hopefully, a multifaceted policy can emerge from serious consideration as how best to use all of the available tools to advance our domestic interests, while maintaining strong relationships with our partners, and a strong economy worldwide.