Tariffs, tariffs, tariffs! Seems like nothing gets more discussion in America right now than tariffs. Some folks are agin’ ’em, others are for ’em. What do you think?

Just short of two months into the new administration of President Donald Trump, many economic experts, pointing to the 9 percent drop in the Dow Jones Industrial Average since its high on January 30, and similar declines in other indexes, are warning that America now has a 50/50 chance of falling into a recession. A major reason is the impact of tariffs, which Trump threatens to impose on imports from many nations. He justifies them as “reciprocal”—if Nation X imposes a 25% tariff on imports of product Y from the United States, the United States will impose a 25% tariff on imports of product Z from nation X. Trump hopes Nation X will back off from its tariffs because it doesn’t want to face our tariffs. Sounds reasonable at first glance, but in reality, it’s bad economics.

Today I’m going to draw almost exclusively from something I wrote nearly forty years ago in my book Prosperity and Poverty: The Compassionate Use of Resources in a World of Scarcity, a general introduction to economics built on the foundation of Biblical worldview, theology, and ethics. I’m doing that precisely to preclude complaints that I’m taking my position for partisan political reasons driven by current events.

(By the way, if you want to read a general introduction to economics built on Biblical worldview, theology, and ethics, that book, Prosperity and Poverty, is available from the Cornwall Alliance. In fact, from March 15 to May 15, 2025, while supply lasts, as our way of saying “Thank you!” when you donate any amount to the Cornwall Alliance and request it, we’ll send you a free copy of Prosperity and Poverty, and your gift will be tax deductible. To take advantage of this offer, just go to CornwallAlliance.org/donate, and as you fill out the donation form, enter Prosperity and Poverty, and we’ll send it to you.)

So, let’s get to today’s topic.

Basic Effects of Tariffs

Tariffs on imports, if they have any effect at all, diminish the supply of goods relative to demand in the country that imposes them, and so they drive up prices in that country. As supply falls relative to demand, price rises, and vice versa—one of the basic laws of economics.

This hurts consumers in the tariff-imposing country in two ways.

First, and obviously, by reducing supply relative to demand, it means they must pay more for both imported and domestic goods of the kind controlled by the quota—more for the imported because of the direct effect of the tariff, more for the domestic because the domestic producers don’t face competition from foreign producers and so can raise their prices with relative impunity.

Second, it also means consumers must pay more for other goods not controlled by, but influenced by, the tariffs. For the only reason imports would outsell domestically produced goods of the same quality if not limited by tariffs is that the imports could be produced and brought to market—even after the costs of long-distance transportation—at a lower cost than the domestics. This means that foreign producers have a comparative advantage in that field over domestic producers. (I discuss the meaning of that technical phrase, comparative advantage, in my book, so if you’re not sure what it means, there’s another reason to donate and ask for Prosperity and Poverty.)

To get back to the topic: By restricting imports, tariffs override the economic information generated by that comparative advantage. As a result, domestic producers focus more productive resources than they otherwise would on a field in which they are at a comparative disadvantage. This in turn means that domestic production of still other products, at which domestic producers have a comparative advantage over foreign producers, is curtailed for lack of sufficient investment.

That results in two forms of bad stewardship: higher prices for the other domestically produced goods than would prevail without the tariffs, and misallocation of resources to inefficient activities.

Tariffs as Job Protection?

Import tariffs typically are defended on the grounds that they protect domestic jobs, preventing unemployment. But their real effect is simply to shift employment from fields in which domestic producers would have a comparative advantage to those in which they have a comparative disadvantage. If imports drove some domestic producers out of business, the resources those producers would have used would be invested elsewhere, creating jobs to replace those lost.

But this is not all. The Christian especially, who recognizes that God requires that we care about foreigners as truly as we do for citizens of our own country (remember the Parable of the Good Samaritan), must see that domestic jobs can be protected by tariffs only by taking away foreign jobs. Many who lose those foreign jobs will be low-income earners in Third-World countries, countries much less prosperous than the United States, who may then be hard pressed to survive. How, in light of the Biblical standards of impartiality and concern for the poor, can we justify that?

Does Reciprocity Justify Tariffs?

But what about reciprocity? if Nation X imposes a 25% tariff on imports of product Y from the United States, does that justify the United States’ imposing a 25% tariff on imports of product Z from nation X? By no means! One might as well cut off one’s nose to spite one’s face.

What does Nation X’s tariff on imports of product Y from the United States do to consumers of product Y in Nation X? It raises their costs for it, making them less well off than they otherwise would have been. Meanwhile, consumers in the United States benefit from less costly goods, because imported from Nation X, than if they were restricted to domestic producers.

But now if the United States imposes “reciprocal” tariffs on Nation X, while that will make consumers in Nation X less well off than they otherwise would be, it also makes Americans less well off, both by depriving them of a market for that product and thus reducing demand for its production, including for employment in its production, and by restricting their purchase of that product to domestic production, which is more costly than production in Nation X (from which, remember, it makes sense to import only if the imported good is less expensive than the domestically produced good.)

Tariffs and National Security

Now, I know what many of you must be thinking: But what about national security? Can’t tariffs be defended on that ground?

If individuals, companies, and states chose consistently with the principles of absolute and comparative advantage, aggregate production in the world would be maximized, and standards of living everywhere would rise—though they would not necessarily be equal. This means that it is in principle better economically to allow free trade than to set up legal barriers to trade, like tariffs (or import quotas). Consistent with such principles, as Ludwig von Mises wrote in his book Socialism: An Economic and Sociological Analysis, “… frontiers would be without significance. Trade would flow over them unhindered.”

Barriers to trade, then, including tariffs, can be defended properly only on the non-economic ground of national security. No economic argument for free trade, for instance, can properly counter the argument against selling nuclear weapons to an enemy nation. Similarly, one might argue for prohibiting all trade with an enemy nation on the supposition that its economy would suffer more than the domestic economy and, presumably, weakening its economy compared to the domestic economy would lessen its martial threat.

Free trade between enemy nations, then, is normally to the martial advantage of the weaker nation, the one with lower gross domestic product per capita, a poorer economy. To counter this with the economic argument that both nations will prosper more with free trade is to ignore the fact that national security and economic advantage are quite different, though closely related, considerations.

Fundamental principles don’t change with time. Neither do they change with the election of one politician over another. Tariffs are bad economics. They might be defensible on national security grounds, but not on economic grounds.

Remember, if you want a good introduction to economics built on Biblical worldview, theology, and ethics, you can receive a copy of my book Prosperity and Poverty: The Compassionate Use of Resources in a World of Scarcity from the Cornwall Alliance for the Stewardship of Creation. How? As our way of saying “Thank you!” when, from March 15 to May 15, 2025, you donate any amount to the Cornwall Alliance and request it, we’ll be glad to send you the book, absolutely free—while supply lasts. To request your free copy, go to www.CornwallAlliance.org/donate, and as you fill in the donation form, ask for Prosperity and Poverty.

Until next time, remember Micah 6:8: God “has told you, O man, what is good; and what does the LORD require of you but to do justice, to love mercy, and to walk humbly with your God?”

Photo by Galen Crout on Unsplash