New Study Shows Trump Might Be Right on Tariffs | The American Spectator

A few months before last year’s presidential election, I penned a piece inquiring whether Donald Trump was channeling Pat Buchanan. It appears that this same question is again warranted.

When Buchanan campaigned for the Republican presidential nomination in the 1990s, he made tariffs a central pillar of his platform. He warned that unchecked globalization would hollow out American industry, erode the middle class, and leave the nation vulnerable to economic dependence. His message resonated — he won the New Hampshire primary in 1996 and reshaped the conversation within the GOP.

So, where would the U.S. be today, economically, if it had adopted Buchanan’s ideas sooner — before Trump’s return to the White House?

New research dealing with that question gives us a clue.

The United States, it concludes, would likely be economically richer, including a more productive manufacturing sector.

Economists Hayato Kato, Kensuke Suzuki, and Motoaki Takahashi, in their paper, “Trade Policy and Structural Change,” analyze the effects of a major trade policy shift. What if the U.S. had raised tariffs on imported manufactured goods by 20 percent beginning in 2001 — the year George W. Bush began his presidency?

(It is interesting that the authors chose that percentage rate; Bloomberg Economics estimates that if tariffs remain as they have been assessed by Trump, they will average 15.2 percent in 2025.)

The model presented finds that such a policy would have boosted the national economy by 0.36 percent and raised the manufacturing share of the economy by about one percent. What does a 0.36 percent gain in the economy mean in real terms? It’s equivalent to a permanent increase in real consumption — enough that, over a lifetime, the average American household would have enjoyed the purchasing power of an extra $7,200. By contrast, economists’ estimates of the gains from the now-defunct Trans-Pacific Partnership (TPP) ranged from just 0.1 to 0.12 percent of GDP — making the modeled benefit from Buchanan and Trump-style tariffs roughly three times greater.

The contrast between historical fact and what could have been fits remarkably well with both Buchanan’s and Trump’s advocacy: a return to national industry, bolstered by protective tariffs, to restore economic sovereignty.

Tariffs and the Shape of the Economy

The paper does more than reignite a policy debate. It questions how economists have modeled trade and growth for decades.

Unlike standard trade models, which assume consumers always spend in fixed proportions regardless of income, the authors use a more realistic assumption — their premise is that as people get richer, they shift their spending toward services and away from goods. The model also includes the idea that manufacturing and services aren’t easy substitutes for each other, and are inextricably related to production and consumption.

These dynamics help explain economic structural change — the long-term transition in advanced economies from goods production to the service sector. By raising the relative price of imported goods, tariffs partially slow this drift and redirect spending — and capital — back into domestic industry. That shift, in turn, raises income. The two effects pull in opposite directions: higher prices favor manufacturing while higher incomes orient spending toward services. In the researchers’ model, the price effect prevails, leading to more manufacturing and a lasting improvement in real income.

What About Retaliation

The authors also model what happens if other countries respond with identical tariffs of their own. This was a complaint of those skeptical of Trump’s tariff policy.

In that scenario, U.S. GDP falls by 0.12 percent — a modest loss that wipes out the gain from unilateral action.

Theory vs. Practice

When President Trump imposed broad tariffs during his first term, many U.S. trading partners responded not with retaliation but with negotiation. Canada and Mexico agreed to rewrite NAFTA. Japan and South Korea entered new trade talks. China signed the Phase One agreement. More recently, as the Trump administration has introduced a new round of tariffs on everything from cars to computer chips to green technology, foreign governments have mostly refrained from counter-tariffs.

Instead of matching duties, many countries have sought exemptions, adjusted their export strategies, or reduced their own barriers. As the authors suggest, the real-world response to U.S. tariffs has resembled strategic accommodation more than correlative escalation.

A Modest Gain, but Real Nonetheless

A 0.36 percent GDP gain is not transformational. But in economic policy, neither is it trivial. It’s larger than the projected gains from nearly every modern trade agreement, and of critical importance — it is permanent. The authors’ analysis implies a permanently higher level of real consumption, one that grows in value over time.

And the shift in sectoral composition is not insignificant: a one-percentage-point increase in the manufacturing share of GDP is remarkable in the context of the U.S. economy, which saw that share fall from 16 percent in 1999 to just under 11 percent today.

What gives credence to the authors’ work is that they are careful not to oversell their results. Their model assumes efficient recycling of tariff revenues, frictionless capital markets, and gradual adjustment. But they also show that older models — those assuming fixed preferences and easy substitution between manufacturing and service sectors — tend to overstate the costs of protection and understate its structural impact.

A New Question

The economic debate over tariffs today is no longer dichotomous. Policymakers no longer start from the assumption that any deviation from free trade must necessarily distort outcomes. Instead, the new question becomes: What is the purpose of one’s trade policy — what national objective does it serve, and what tools are available to shape long-run economic structure?

The authors’ paper offers one answer: A well-designed tariff policy — targeted, sustained, and matched with domestic investment can raise real income and preserve manufacturing capacity.

It won’t reverse globalization, but it can tilt the playing field back toward American producers.

It also affirms something Buchanan understood early and that Trump (and now America) are implementing today: free trade is not neutral, but neither is tariff policy. The shape of an economy is a set of policy choices with serious implications for generations of Americans.

Had the country chosen differently in 2001, the model suggests, Americans might be $7,200 richer today — and with more factories still operating.

READ MORE from F. Andrew Wolf Jr.:

Trump and the Fed: Fiscal Dominance or Just Politics?

The Debanking of the American Conservative

The Media Must Admit Their Complicity in Russiagate