International trade has lifted millions of people out of poverty, boosted standards of living, and benefited the United States more than most other countries. Why? The American economic engine thrives on economies of scale, designed to produce solutions for the world’s eight billion consumers, not just America’s 340 million customers. And the benefits are tremendous. But the US is moving down a protectionist path that will weaken our economic growth and competitiveness while hurting consumers and businesses.

Trade is essential to US prosperity

Today, trade supports 41 million American jobs, or about one in four workers. And those in export-intensive industries earn approximately 18% more than the average wage. Currently, markets outside the US represent 80% of the world’s purchasing power and 95% of consumers. But by 2030, the number of global middle-class consumers will rise from 3.5 billion to nearly five billion. And virtually all of them will live outside the US.

Exporting goods and services to fast-growing foreign markets is critical, but it’s only part of the equation. Every year, US multinationals operating abroad produce and sell two-and-a-half times more in foreign markets than is exported from the homeland. This provides tremendous benefits, including significantly more revenue for American-based operations, their research and development initiatives, and US-based jobs in a variety of sectors.

Looking forward, it will be increasingly important to maintain positive relationships with foreign governments that invite American multinationals to operate in their countries and to ensure US exporters have secure access to their markets. Unfortunately, the winds are against us.

Why trade agreements matter

The US currently has 14 free trade agreements with 20 countries. Remarkably, these partners account for nearly half of all US exports despite representing just 6% of the world’s consumers. This demonstrates that when trade barriers are reduced, American businesses and workers can compete anywhere with great success.

However, the US is falling way behind in securing new agreements. There are 359 regional trade agreements without US participation, according to the World Trade Organization. And a flurry of new ones are currently being negotiated that give foreign companies preferential treatment over US businesses. This will put US firms in an increasingly less competitive position, leading to a loss of market share. Despite bipartisan support for trade in the past, today’s protectionist political climate makes negotiating new trade deals extremely challenging.

Imports don’t weaken the economy

A common misperception of imports has led to policies that attempt to restrict them. Imports offer a greater selection of consumer and industrial products, a wider range of quality and access to lower-cost goods and services that effectively subsidize the quality of life for lower- and middle-income Americans. Imports also help keep inflation down, one of the most essential factors in sustaining our standard of living.

Imports create millions of American jobs in marketing, sales, retail, wholesale and transportation. And since more than half of all US imports are intermediate inputs used in the final production of US products, they also help American manufacturers remain globally competitive.

When considering reducing imports in hopes of stimulating what some speculate is a hollowed-out manufacturing sector, consider this: According to various metrics, including industrial production in manufacturing published by the Federal Reserve Bank of St. Louis and inflation adjusted value added in manufacturing published by the Bureau of Economic analysis, US manufacturing output is at near or all-time high.

It’s also important to understand that due to demographic trends, our labor shortage is projected to worsen. Currently, there are approximately eight million American jobs that are not filled, the Bureau of Labor Statistics indicates. Reducing imports or backshoring low-technology, low-value goods where the manufacturing processes cannot be automated makes little sense. Finding American workers to make goods that were previously imported is extremely difficult, and pulling them from other sectors will only drive prices up, hurting consumers and industry. This will result in less output and economic growth.

Don’t blame imports for declining manufacturing jobs

Also misguided is the blaming of imports as a primary cause for declining jobs in the manufacturing sector. As productivity rises due to the introduction of new technologies and automation, the same output simply requires fewer people. For example, look at American agriculture. In 1940, there were 9.4 million farm jobs; today, there are approximately 2.3 million, yet US agricultural output has skyrocketed.

Declining jobs in the manufacturing sector is not new. According to data published by the Federal Reserve Bank of St. Louis, American manufacturing jobs as a percentage of total US employment have been declining since 1944. In the CSIS report, “Do Not Blame Trade for the Decline in Manufacturing Jobs,” labor economist Stephen Rose states: “Almost the entire decline from 32% of the labor force in 1955 to 8% in 2019 was not caused by imports but by higher productivity. This is a world-wide phenomenon, as even Germany and other countries with positive trade balances also had their shares of manufacturing employment suffer comparable declines.”

Tariffs don’t eliminate trade deficits

A popular assumption is that by raising or implementing new tariffs, a country will eliminate its trade deficit. This is not true. Trade deficits are not simply a function of exports and imports, but reflect a combination of factors, including savings rates and investment flows.

Surprising to many, Germany, Switzerland and Singapore consistently run a trade surplus, yet maintain low tariff levels. And India, which is highly protectionist, consistently runs trade deficits, according to data from the World Bank and United Nations. Based on a study of 183 countries published by the Peterson Institute for International Economics, author Caroline Freund said, “Countries with higher tariffs have, if anything, larger deficits.”

Tariffs typically don’t work and often backfire

For decades, US policymakers have turned to tariffs as a tool to protect industries and workers from foreign competition and increase domestic production. Import tariffs, which are paid by the importer and typically passed on to buyers, do not achieve these goals and often backfire, causing prices to increase and inflation to rise — a consideration that may keep the Federal Reserve from lowering interest rates and even raising them. Once implemented, tariffs typically create more losses than gains in terms of production levels, economic growth and jobs.

During his first term in March 2018, US President Donald Trump imposed tariffs on steel and aluminum imports from various countries. The intention was to boost US steel and aluminum production while increasing employment. The opposite happened. Tariffs placed on China also were hoped to change Chinese bad behavior. They did not.

According to a May 2024 report published by the Tax Foundation, a Washington, DC think tank, as prices increased, downstream industries that use steel and aluminum were negatively affected, experiencing an annual $3.4 billion loss in production from 2018 to 2021. Analysis by the Trade Partnership Worldwide, a US-based research and consulting firm, estimated that for every job gained in the production of steel and aluminum, 16 were lost in steel-using industries.

This loss of jobs shouldn’t have been a surprise. In March 2002, President George W. Bush imposed tariffs on a variety of steel products for three years. The result: Higher prices led to a loss of nearly 200,000 jobs in American steel-consuming sectors — a loss larger than the total employment of 187,500 in the steel-producing sector at that time.

Each job created due to Trump’s March 2018 steel tariffs came at a steep price: an extra $650,000 per job paid by steel users, according to the Peterson Institute for International Economics, a nonpartisan research organization. This was hardly a model of economic efficiency, but not unusual. Overall, US industries exposed to the 2018–2019 tariff increases experienced relative reductions in employment, a January 2025 Federal Reserve study confirms.

Tariffs on Canada and Mexico will hurt North America

On February 1, 2025, Trump escalated trade tensions by threatening to impose 25% tariffs on goods from Mexico and Canada, and an additional 10% tariff on Chinese imports. He justified the potential Mexican and Canadian tariffs by criticizing what he described as their inadequate efforts to control illegal drug trafficking and immigration into the US. 

On February 10, 2025, Trump announced he would impose 25% tariffs on steel and aluminum imports from all countries effective early March. Canada and Mexico are two of the United States’ biggest suppliers. Trump’s longstanding concerns about trade deficits may be a key motivating factor behind these protectionist measures.

If this is the case, consider these facts. On average, 40% of Mexican exports to the US are components, parts and materials that were originally exported from the US and incorporated in the Mexican production process. For Canada, 25%; for China 4%, according to the Dallas Federal Reserve. Thus, trade deficit figures do not always accurately reflect what’s happening on the ground and may be poor data to base policy decisions.

To understand the depth of the US–Canada–Mexico relationship, perhaps the most telling is this: The US exports more to Canada and Mexico than to our next nine biggest country destinations combined. The North American Free Trade Agreement (NAFTA), which was updated by the Trump-negotiated United States-Mexico-Canada Agreement (USMCA) in 2020, has stimulated the development of sophisticated supply chains, increased capital flows, advanced the spread of technology and enhanced productivity. Additionally, it has increased the number of low-priced product choices for consumers and created more good-paying jobs. Crucially, it has elevated North American competitiveness.

If implemented, the result of these tariffs will undoubtedly hurt North America by pushing prices and inflation up and economic growth down. The extent of the potential damage, which could be massive, will depend on a number of factors not known at this time.

Our auto industry will become less competitive

Although we can’t predict the extent of Trump’s protectionist positions, what we do know is this: Because the North American auto industry is so deeply integrated, the introduction of tariffs will make it less competitive worldwide. It also will raise the price of automobiles hurting American Canadian and Mexican consumers, workers and companies.

Auto materials, components and parts made on the continent are supplied by all three countries. They cross the border several times during the manufacturing process. For example, it’s not uncommon for auto parts to begin manufacturing in the US and Mexico, be shipped to a plant in Canada where valuable components are added and tested, be trucked back to a US facility for completion, then be exported to an Asian buyer. As a result, a tariff would not be applied once, but multiple times, boosting costs significantly.

Our trade partners may look for better partners

Noted earlier, there are nearly 360 regional trade agreements around the world without US participation and many more are currently being negotiated. As our trade partners become more disillusioned and uncertain of their future trading relationship with the US, they will be more incentivized to forge ahead with new bilateral and multilateral trade agreements without US participation.

Also consider the fact that there are more than 150 developing countries that represent 6.9 billion people, or approximately 86% of the world’s population. Currently, China is the world’s largest exporter and the biggest trade partner with many of these countries. With both the US and China competing for their hearts, minds and markets, the US may be perceived as a less trustworthy partner due to its growing tensions with longstanding allies.

A smarter approach

History demonstrates that broad tariffs typically hurt more than they help and can quickly escalate, creating unbearable damage. The most severe example is the Smoot-Hawley Tariff Act implemented on June 17, 1930, by US President Herbert Hoover. It raised US import tariffs nearly 60%. In anticipation of Act’s passage, France, Italy, India and Australia passed their own protectionist legislation. Others, such as Spain, Switzerland and Canada, followed suit. The result: Export markets dried up, domestic industries slowed down and the unemployment rate in the US rose to 25% in 1933. Protectionism may have put the “Great” in the Great Depression.

While some protectionist measures can be useful when narrowly applied, long-term prosperity depends on expanding trade opportunities, ensuring competitive industries, and balancing economic security with economic growth. The best way to support American workers and businesses is not through trade wars, but through smart, forward-thinking trade policy that enhances US competitiveness in a rapidly changing world.

[Lee Thompson-Kolar edited this piece.]

The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.