4 min readJul 25, 2026 07:06 AM IST
First published on: Jul 24, 2026 at 06:35 PM IST
Also by Ankur Singh
As the legal door on temporary tariffs imposed under one section of US trade law is likely to expire, the Trump administration seems to be shifting to another statutory provision to preserve import duties on almost all of America’s trading partners. The legal justification has changed but the politics, sans any economic rationale, has not. Washington under Donald Trump’s tariff mania remains convinced that indiscriminate American tariffs on its trade partners can restore industrial strength, independent of what evidence suggests.
It is an idea with enduring political appeal for Trump’s popular electoral base where imports apparently threaten domestic jobs. Taxing them appears to protect domestic workers. The story is simple, intuitive and emotionally persuasive. Economics, however, has rarely rewarded simple stories. Few economic policies have been studied as extensively as tariffs over the past decade, especially in the last two years.
Broad import duties raise costs across the economy, disrupt supply chains and create uncertainty for businesses. Their contribution to reviving manufacturing has been far more limited than political rhetoric suggests. The biggest misconception surrounding tariffs is also the most persistent. They are often presented as a penalty imposed on foreign producers. In practice, they function largely as a domestic tax. Research by economists including Mary Amiti, David Weinstein and Stephen Redding shows that most tariff costs are ultimately borne by American businesses and consumers through higher prices.
Modern manufacturing explains why. Products no longer move from one country to another in a single step. Components cross multiple borders before reaching consumers. More than half of global trade consists of intermediate goods used to produce other goods. Tariffs imposed on imported steel, electronics or machinery therefore raise costs for the very manufacturers they are intended to protect, making domestic production less competitive.
The same disconnect appears in America’s trade deficit. Despite successive rounds of tariffs, the United States continues to run a record merchandise trade deficit. Trade balances are shaped by deeper forces such as national savings, investment and consumption. Tariffs can redirect trade from one country to another. They cannot change those underlying fundamentals.
This helps explain why supply chains have adjusted more quickly than factories. Production has increasingly shifted through countries such as Vietnam, Mexico and other intermediary economies rather than returning to the United States. Businesses adapt to incentives with remarkable speed. They reorganise sourcing, reroute shipments and redesign supply chains long before they rebuild factories. Protection may change the geography of trade. It rarely changes the economics of production.
If tariffs repeatedly disappoint as economic policy, why do they continue to dominate political debate? The answer lies beyond economics. Tariffs have gradually evolved from an economic instrument into a political language. Every successful political narrative needs three ingredients. Someone to blame, someone to protect and a visible action that signals resolve. Tariffs conveniently provide all three. Foreign producers become the villain. Domestic workers become the beneficiaries. Governments appear decisive. Their political value often exceeds their economic value.
That is why protectionism keeps returning. Structural reforms demand patience, political consensus and years before their benefits become visible. Investments in education, research, infrastructure and innovation rarely produce immediate electoral rewards. Tariffs create headlines overnight.
Mohan is dean and professor of Economics, O P Jindal Global University (JGU). Singh is a research analyst with Centre for New Economics Studies, JGU
President Donald Trump dances as he walks off stage after speaking to House Republican lawmakers during their annual policy retreat. (Photo: AP) 
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