Tariffs are the central pillar of Donald Trump’s economic policy. Yet it is precisely in this area that he violated the Constitution of the United States. This was not established by left-wing judges, but by the conservative majority of the United States Supreme Court itself, which canceled the tariffs imposed by Trump. These had been introduced through legislation intended for national emergencies. By a majority of six to three, the Court upheld a lower court’s ruling that the Republican president had abused his authority by invoking the 1977 law.
Trump’s tariff policy is based on the promise that high import tariffs can bring industrial jobs back to the United States. This is unlikely to work. Manufacturing in the United States is simply too expensive. Motorola learned this lesson when it opened a smartphone factory in Texas in 2013, only to close it twelve months later. Analysts estimate that Apple would need three years and about $30 billion just to move ten percent of its Asian supply chain to the United States. In fact, Apple responded to Trump’s increased tariffs on China by moving some of its production elsewhere, not to America, but to India, which, in turn, triggered new tariff threats from Trump.
“I have successfully used the tool of tariffs to secure colossal investments in America like no other country has ever seen before… In less than a year, we have secured commitments of more than $18 trillion, an amount unimaginable to many,” Trump said, but the statement is as far-fetched as his claim to have ended eight wars in eight months or reduced drug prices by “over 1,000 percent.”
Shortly before, the Trump administration had cited a lower figure of $9.6 trillion. But even that figure was invented, as US economist Alan Reynolds (of the Cato Institute) demonstrated: «Many of the 132 announcements in the White House’s $9.6 trillion list were not about investments at all, but about foreigners promising to buy more US products. In a so-called “investment announcement,” Japan’s largest power company, JERA, pledged to buy $200 billion of LNG from the United States. So what? Many power companies around the world rely heavily on U.S. natural gas, liquefied or otherwise. This is just a Japanese import, not an investment.”
It was said that India would invest $500 billion in “mutual expansion of trade”. Whatever it is, it is not an investment. The fact that two countries agree to increase bilateral exports and imports does not constitute foreign investment in the United States. The largest real-world investment plans, implausibly attributed to Trump’s leadership or tariffs, rather than the rise of AI, are investments in Technology and AI by Amazon, Meta, Apple, Micron, IBM, and Google.
Other long-term, multibillion-dollar investment plans include research and development spending by major pharmaceutical companies. But R&D is nothing new: it’s simply what pharmaceutical companies have always done to support growth.
Numerous other investments on the White House’s Trump Effect list are described as “manufacturing expansion” or “manufacturing facility modernization.” But such investments happen all the time, even during recessions and even among companies that simultaneously close other plants. One entry lists Heinz, investing $3 billion to upgrade manufacturing facilities, while the next lists Kraft-Heinz, investing another $3 billion for the same purpose. Whoever compiled the data evidently did not realize that we are not talking about two companies, but only one.
Caterpillar is listed as an “investor” in a “professional training program.” McDonald’s has announced “investments” in workforce expansion, otherwise known as hiring. In other words, the $9.6 trillion figure was also fictitious. To make the claim even more impressive, Trump nearly doubled the number, presenting it as evidence of the investment boom supposedly triggered by his tariff policy.
Trump’s message is politically captivating. Workers are told that everything can go back to the way it was before. This sounds much more tempting than the truth: in an age of globalization, the internet and artificial intelligence, it is unrealistic to expect existing jobs, especially low-skilled ones, but increasingly also high-skilled ones, to remain unchanged. Anyone who wants to succeed in this context must adapt, acquire new skills and move into sectors where human labor is less easily replaceable. This is not an attractive message to voters. Much more tempting is the claim that foreigners are to blame: the Japanese, the Chinese, the Germans, accused of flooding American markets with cheap goods and refusing to buy American products.
American companies understand how harmful tariffs can be. The Footwear Distributors and Retailers of America warned Trump in a letter that rising costs caused by the tariffs threatened the survival of U.S. shoe companies and put hundreds of companies at risk of closing. American farmers have also been severely affected by the trade war unleashed by the administration. In response, Trump distributed billions of dollars in subsidies to farmers to offset the damage.
This represents a classic example of what economist Ludwig von Mises described as the ‘intervention spiral’. Government intervention in markets produces unintended consequences because it distorts price signals and incentives. Attempts to correct these new problems lead to further interventions, which, in turn, create further distortions and new problems, generating an ever-widening cycle of state interventions.
