BUSINESS
When tariffs are a good idea
(CNN) — President Donald Trump's tariffs have been met with alarm and concern about how steep import taxes against the United States' three biggest trading partners not only could harm the economy in the immediate term but also could set off a devastating trade war.
Posted 4:32 a.m. Today - Updated 4:30 a.m. Today
By Alicia Wallace , CNN
(CNN) — President Donald Trump's tariffs have been met with alarm and concern about how steep import taxes against the United States' three biggest trading partners not only could harm the economy in the immediate term but also could set off a devastating trade war.
To be fair, the broad-based tariff actions are only a few dozen hours old, and their eventual outcome remains unwritten. Trump, when addressing Congress on Tuesday night, acknowledged they may cause "a little disturbance," but the end game in his mind is simple: "Tariffs are not just about protecting American jobs, they're about protecting the soul of our country," he said. "Tariffs are about making America rich again and making America great again."
History has shown that there are practical — and sometimes beneficial — use cases for tariffs.
"There's a reason these policy tools exist," Claudia Sahm, chief economist at New Century Advisors, said in an interview.
Typically, tariffs are used to address unfair trade practices and shore up domestic industries.
"So, say a country is just mass producing and dumping large quantities of goods into another country," she said. "That can be really damaging for domestic producers."
And sometimes, in those cases, that mass production is heavily subsidized by the government itself, she said, noting China has been accused often of these practices.
Other key reasons for tariffs include national security concerns, shoring up key points in supply chains and combating monopolization of critical imports — aspects that became particularly salient during the Covid-19 pandemic, Economic Policy Institute economists Adam Hersch and Josh Bivens have noted.
"Tariffs are a valid, and often useful, industrial policy tool that can provide narrow and targeted protection for key sectors," they noted.
Unfortunately, economists and researchers say, what's happening now falls well outside of those historical norms.
"What has never happened is tariffs being used, as Trump did (this week), as a hammer to get other countries to halt the flow of illegal immigrants or fentanyl," Alan Wolff, senior fellow at the Peterson Institute for International Economics and former deputy director-general of the World Trade Organization, told CNN.
"That's not in the rule book," Wolff said.
And the risks of taking such a heavy-handed and broad-based approach against such a large volume of goods (43% of all US imports) are just too great to sugarcoat, said Douglas Porter, chief economist at BMO Financial Group.
The tariffs likely will cause supply chain disruptions, shortages of some products, near-term price spikes (likely first seen at the grocery store), and increased volatility in financial markets, he said.
BMO on Tuesday downshifted its forecast for US GDP growth this year by 0.4 percentage points to 1.8% and hiked inflation estimates as well, raising expectations for the core Personal Consumption Expenditures price index by 0.4 percentage points to 3%.
In January, the core PCE price index slowed significantly to 2.6% from 2.9%.
"A trade war produces no winners," Porter told CNN. "Some economies will lose more than others, but it's actually tough to say anything positive about this, because I actually do believe it will harm the US economy to some extent."
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