US tariff rises will prove counterproductive

Significance During his election campaign, Trump promised to impose 10-20% tariffs on goods imported into the United States, and 60% tariffs on imports from China. The tariffs touted would increase the effective US import tariff rate from around 2% to an estimated 22.9-28.5%, at a direct cost of 1.7-2.3% of US domestic demand. Impacts Makers of intermediate materials will gain near term from higher tariffs, but they will erode long-term domestic demand for their products. Labour shortages combined with costlier inputs and equipment will constrain the ability of US manufacturing to displace imported goods. Economic and political uncertainty will roil financial markets, which may ultimately be the brake on the Trump administration’s policies.