To our next president: Here’s how to use your tariffs

If you’ve been reading economic news lately, you know by now that tariffs raise prices for Americans. Whether you shop at Target, Aldi or Neiman Marcus or are a U.S. manufacturer buying inputs from abroad, you’re the one paying. The next president is likely to move ahead with tariffs anyway, either by embracing the current lot or adding new ones.

And so, Mister or Madam President, if you insist, here are three things you should bear in mind to get the most out of your tariffs:

First, be clear about what you want. If there’s a tangible, achievable goal — a clear “get” from the other country — the threat of high tariffs can work. Take former President Donald Trump’s use of Section 232 tariffs on imported autos. This pressure helped the U.S. regain agricultural market access to Japan after leaving the Trans-Pacific trade deal.

Trump’s Section 301 tariffs on Chinese imports including everything from electronics to dish towels — maintained by the Biden administration — have been less effective.

They were meant to push China to change its harmful laws, policies and practices relating to intellectual property theft and forced technology transfer (or to punish them). But there has been no material change in China’s offensive practices so far.

According to U.S. Trade Representative Katherine Tai last month, China's “harmful forced technology transfer practices — in particular its cyber theft and industrial espionage — have continued, and in some instances, worsened.”

The punitive effects may have at least partly materialized. The tariffs combined with concerns facing multinational firms in China — such as political tensions, a hostile business environment, cybersecurity, and the rule of law — appear to have incentivized some firms to move their operations outside of China. Between 2017 and 2023, China’s share of U.S. imports fell from 22 percent to 14 percent.

Changing global supply chains will take years. Whether the tariffs further U.S. interests will depend on the costs we bear at home, how future administrations embrace the geoeconomic effects of new global supply chains and how China reacts. In any event, expect a long and costly process.

Second, if you're using tariffs to shield domestic industries from foreign import competition, make sure those industries have a plan to adapt to global markets.

Tariffs won’t work forever as consumers relentlessly chase the lowest prices. Sooner or later, imports — whether final products or components — will slip back in. As investigative reporters Shawn Donnan and Bill Allison have helped to show, supply chains and the marketplace are almost always more complicated than policymakers appreciate.

Third, team up with key trading partners. The bigger the goal, the more crucial this is. In a global economy, you need major players on board for tariffs to have real impact.

Recently, the U.S., Canada and the European Union slapped tariffs on Chinese electric vehicles to combat China’s state-driven overproduction. The tariffs aim to counter China’s “intentional, state-directed policy of overcapacity.” While these tariffs may not fully block subsidized Chinese EVs (from the EU markets, for instance), a united effort is far more effective than going solo.

The notion that tariffs will reduce our trade deficit is endearing, but it doesn’t work that way. The deficit is mainly a result of the low rate of U.S. domestic savings by households, firms and the government relative to the economy’s investment needs. Tariffs don’t change that.

Instead, try incentivizing American households and firms to increase savings or work with Congress to decrease federal spending. Either would reduce our reliance on capital inflows from other countries. Many economists say we should do those things regardless of the trade balance.

Americans don’t like high prices. So, to the 47th president of the United States, whoever it is: Be clear about what you want, and if you must use tariffs, then at least make sure you get something in return.

Christine McDaniel is a senior research fellow with the Mercatus Center at George Mason University.