Personal Finance
Do tariffs protect U.S. jobs and industry? Economists say no
President Donald Trump addresses a joint session of Congress at the U.S. Capitol on March 4, 2025.
Mandel Ngan-Pool/Getty Images
President Donald Trump has spoken of tariffs as a job-creating behemoth.
Tariffs will “create jobs like we have never seen before,” Trump said Tuesday during a joint session of Congress.
Economists disagree.
In fact, the tariff policies Trump has pursued since taking office would likely have the opposite effect, they said.
“It costs American jobs,” said Mark Zandi, chief economist of Moody’s.
He categorized tariffs imposed broadly as a “lose-lose.”
“There are no winners here in the trade war we’re seemingly being engulfed in,” Zandi said.
A barrage of tariffs
The Trump administration has announced a barrage of tariffs since Inauguration Day.
Trump has imposed an additional duty of 20% on all imports from China. He put 25% tariffs on imports from Canada and Mexico, the U.S.’ two biggest trade partners. (Just days after those took effect, the president delayed levies on some products for a month.)
Tariffs of 25% on steel and aluminum are set to take effect Wednesday, while duties on copper and lumber and reciprocal tariffs on all U.S. trade partners could be coming in the not-too-distant future.
There’s a deceptively simple logic to the protective power of such economic policy.
Tariffs generally aim to help U.S. companies compete more effectively with foreign competitors, by making it more expensive for companies to source products from overseas. U.S. products look more favorable, thereby lending support to domestic industry and jobs.
Workers pour molten steel at a machinery manufacturing company which produces for export in Hangzhou, in China’s eastern Zhejiang province on March 5, 2025.
AFP via Getty Images
There’s some evidence of such benefits for targeted industries.
For example, steel tariffs during Trump’s first term reduced imports of steel from other nations by 24%, on average, over 2018 to 2021, according to a 2023 report by the U.S. International Trade Commission. They also raised U.S. steel prices and domestic production by about 2% each, the report said.
New steel tariffs set to take effect March 12 would also “likely boost” steel prices, Shannon O’Neil and Julia Huesa, researchers at the Council on Foreign Relations, wrote in February.
Higher prices would likely benefit U.S. producers and add jobs to the steel industry’s current headcount, around 140,000, they said.
Tariffs have ‘collateral damage’
While tariffs’ protection may “relieve” struggling U.S. industries, it comes with a cost, Lydia Cox, an assistant economics professor at the University of Wisconsin-Madison and international trade expert, wrote in a 2022 paper.
Tariffs create higher input costs for other industries, making them “vulnerable” to foreign competition, Cox wrote.
These spillover effects hurt other sectors of the economy, ultimately costing jobs, economists said.
Take steel, for example.
Steel tariffs raise production costs for the manufacturing sector and other steel-intensive U.S. industries, like automobiles, farming machinery, household appliances, construction and oil drilling, O’Neil and Huesa wrote.
Cox studied the effects of steel tariffs imposed by former president George W. Bush in 2002-03, and found they were responsible for 168,000 fewer jobs per year in steel-using industries, on average — more jobs than there are in the entire steel sector.
Tariffs are a “pretty blunt instrument,” said Cox during a recent webinar for the Harvard Kennedy School.
They create “a lot of collateral damage,” she added.
Why tariffs are a ‘tax on exports’
Trucks head to the Ambassador Bridge between Windsor, Canada and Detroit, Michigan on March 4, 2025.
Bill Pugliano | Getty Images
Such damage includes retaliatory tariffs imposed by other nations, which make it pricier for U.S.-based exporters to sell their goods abroad, economists said.
Tariffs imposed during Trump’s first-term — on products like washing machines, steel and aluminum — hit $290 billion of U.S. imports with an average 24% tariff by August 2019, according to a 2020 paper published by the U.S. Federal Reserve. Those levies ultimately translated to a 2% tariff on all U.S. exports after accounting for foreign retaliation, it found.
“A tax on imports is effectively a tax on exports,” Erica York, senior economist at the Tax Foundation, wrote last year for the Cato Institute, a libertarian think tank.
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Damage to the U.S. economy from those first-term Trump tariffs “clearly” amounted to “many times” more than the wages of newly created jobs, economists Larry Summers, former Treasury secretary during the Clinton administration, and Phil Gramm, a former U.S. senator (R-Texas), wrote in a recent Wall Street Journal op-ed.
(President Joe Biden kept most of Trump’s tariffs in place.)
U.S. trade partners have already begun fighting back against Trump’s recent tranche of tariffs.
China put tariffs of up to 15% on many U.S. agricultural goods — which are the largest U.S. exports to China — starting Monday. Canada also put $21 billion of retaliatory tariffs on U.S. goods like orange juice, peanut butter, coffee, appliances, footwear, cosmetics, motorcycles and paper products.
President Trump alluded to the potential economic pain of his tariff policies during his address to Congress.
“There will be a little disturbance, but we are okay with that,” he said. “It won’t be much.”
While many economists don’t yet forecast a U.S. recession, Trump in a Fox News interview on Sunday didn’t rule out the possibility of a downturn as tariffs take effect — though he said the economy would benefit in the long term. If a recession were to happen, it would weigh on protected sectors, too, economists said.
Voters elected President Trump with a mandate to institute an economic agenda that includes tariffs, Kush Desai, a spokesperson for the White House, said in an e-mailed statement.
“Tariffs played a key role in the industrial ascent of the United States stretching back to the 1800s through William McKinley’s presidency,” Desai said.
‘Disappointing results’ of Trump-era tariff policies
There is a historical precedent for the trade war that’s breaking out: The Smoot-Hawley Tariff of 1930, which triggered a reduction in exports and failed to boost agricultural prices for the farmers it sought to protect, Michael Strain, director of economic policy studies at the American Enterprise Institute, a conservative think tank, wrote in a 2024 paper.
Economists also believe the Smoot-Hawley tariff exacerbated the Great Depression.
While a nearly century-old economic policy doesn’t necessarily point to what will happen in the modern era, protectionist policies from the post-2017 years have — like Smoot-Hawley — “had disappointing results,” Strain wrote.
Evidence from recent years suggests protectionism may actually hurt the workers it seeks to help, Strain said.
For example, Trump’s first-term tariffs reduced total manufacturing employment by a net 2.7%, Aaron Flaaen and Justin Pierce, economists at the Federal Reserve Board, wrote in 2024. That’s after accounting for a 0.4% boost to employment in manufacturing jobs protected by tariffs, they found.
The 2018-19 trade war “failed to revive domestic manufacturing” and actually reduced jobs in the broad manufacturing sector, Strain wrote.
The share of U.S. employment coming from manufacturing jobs has been falling since the end of World War II, largely because technological advances have increased workers’ productivity, Strain said. It would be more helpful to direct economic policy toward connecting workers to jobs of the future, he said.
“Trade — like technological advances — is disruptive, but attempts to entomb the U.S. economy in amber are not a helpful response,” he wrote.
Americans are growing increasingly uneasy about the state of the U.S. economy and their own personal financial situation in the face of stubborn inflation and tariff wars.
To that point, 73% of respondents said they are “financially stressed,” with 66% of that group pointing to the tariff wars as a main source, according to a new CNBC/Survey Monkey online poll.
The survey of 4,200 U.S. adults was conducted April 3 to 7.
Americans feeling financially stressed
CNBC/Survey Monkey polls from 2023, 2024, and this year have found that, on average, more than 70% of Americans said that they are stressed about their personal finances. This year’s survey found that 38% of respondents overall said they are “very stressed,” and 29% of high-earners with incomes of $100,000 or more also shared that sentiment.
Consumers are, of course, increasingly stressed by rising prices for essentials like food, energy, and shelter. This is due to a number of factors, including rising inflation, supply chain disruptions and geopolitical events.
In the new CNBC survey, 86% of Americans cite inflation as the top reason for their financial stress, while 75% pointed to interest rates and 66% cited tariffs.
While inflation peaked at 8% in 2022, a 40-year high, it has since cooled significantly, reaching 2.4% in March. Despite this decline, the increased prices during 2022 have led to a loss of purchasing power for Americans, meaning they can buy less with the same amount of money than before.
It would take nearly $114 today to buy what would have cost $100 in January of 2022, according to the Bureau of Labor Statistics.
And while Inflation has eased, experts do say the fallout from President Trump’s trade war threatens to put upward pressure on prices in the months to come.
Tariffs are generally considered to be inflationary, economists say. This is because tariffs increase the cost of imported goods, which can then be passed on to consumers in the form of higher prices. This can lead to a temporary increase in the overall inflation rate.
“We know that tariffs are inflationary,” said David McWilliams, an economist, podcaster and author. “We know that’s hitting on people’s expectations of how much money they’re going to have in their pocket in a couple of months time.”
So, when it comes to financial stress caused by tariffs, 59% of those surveyed by CNBC oppose President Trump’s tariff policy, with 72% concerned about the impact on their personal financial situation.
As a result, 32% said they have delayed or avoided making retail purchases, and 15% said they have “stocked up.”
What’s more, 34% of those surveyed said they have made changes to their investments due to recent stock market volatility from tariffs.
Handling financial stress
Many investors are concerned about their retirement savings, but financial experts say it’s important for those with a long-term perspective to understand that short-term market volatility is a distraction that’s better off ignored.
“The biggest thing is that it’s unknown, and when we don’t know things, and we can’t control things, that’s when our anxiety and our worry can spike, and it’s contagious,” said licensed therapist and executive coach George James, CNBC Global Financial Wellness Advisory Board member, a licensed therapist and executive coach.
While the market could be in for a bumpy ride over the next few months, experts say it’s best to stay the course and avoid making major portfolio changes based on the latest news.
To manage investments during the latest tariff volatility, for example, financial advisors urge investors to maintain a long-term perspective, review and potentially adjust their asset allocation, and consider diversification to mitigate risk. It’s also smart to bolster emergency funds, review your risk tolerance, and explore opportunities for tax-loss harvesting.
Financial experts also urge investors to focus on their risk appetite — and their goals.
“This is the time to evaluate short-, mid-, and long-term financial needs, concerns, and goals. Evaluation before action or inaction is essential,” said Michael Liersch, head of advice and planning at Wells Fargo, said in an e-mail to CNBC. “Getting specific on exact dollar targets, timelines around these targets, and their level of importance [priority] can create clarity around what should be done, if anything.”
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As investors digest the latest bond market sell-off, advisors have tips about portfolio allocation amid continued market volatility.
Typically, investors flock to fixed income like U.S. Treasurys when there’s economic turmoil. The opposite happened this week with a sharp sell-off of U.S. government bonds, which dropped bond prices as yields soared. Bond prices and yields move in opposite directions.
Treasury yields then retreated Wednesday afternoon when President Donald Trump temporarily dropped tariffs to 10% for most countries but increased levies on Chinese goods. That duty now stands at 145%.
As of Thursday afternoon, Treasury yields were down slightly.
Still, “there’s a massive amount of uncertainty,” Kent Smetters, a professor of business economics and public policy at the University of Pennsylvania’s Wharton School, told CNBC.
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Experts closely watch the 10-year Treasury yield because it’s tied to borrowing rates for products like mortgages, credit cards and auto loans. The yield climbed above 4.5% overnight on Tuesday as investors offloaded the asset. As of Thursday afternoon, the 10-year Treasury yield was around 4.4%.
Kevin Hassett, director of the U.S. National Economic Council, told CNBC on Thursday that bond market volatility likely added “a little more urgency” to Trump’s tariff decision.
As some investors question their bond allocations, here’s what advisors are telling their clients.
Take the ‘proactive approach’
Despite the latest bond market sell-off, there hasn’t been a recent shift in client portfolios for certified financial planner Lee Baker, owner of Apex Financial Services in Atlanta.
“I’ve been taking a proactive approach” by shifting allocations early based on the threat of future tariffs, said Baker, who is also a member of CNBC’s Financial Advisor Council.
With concerns about future inflation triggered by tariffs, Baker has increased client allocations of Treasury inflation-protected securities, or TIPS, which can provide a hedge against rising prices.
Consider ‘guardrails’
Ivory Johnson, a CFP and founder of Delancey Wealth Management in Washington, D.C., has also been defensive with client portfolios.
“I’ve used instruments to give me guardrails,” such as buffer exchange-traded funds to limit losses while capping upside potential, said Johnson, who is also a member of CNBC’s FA Council.
Buffer ETFs use options contracts to provide a pre-defined range of outcomes over a set period. The funds are tied to an underlying index, such as the S&P 500. These assets typically have higher fees than traditional ETFs.
Take a ‘temperature check’
With future stock market volatility expected, investors should revisit risk tolerance and portfolio allocations, Baker said.
“This is a good time for a temperature check,” he said.
Market turmoil has happened before and will happen again. If you can’t stomach the latest drawdowns — in stocks or bonds — this is a chance to shift to more conservative holdings, Baker said.
“We’re not selling because I’m concerned about the market,” he added. “I’m concerned about comfort level.”
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