Michael Stumo: The Wisdom of Trump’s Tariffs

In a recent speech at the New York Economic Club, and again during Tuesday’s debate against Kamala Harris, Donald Trump revived one of his signature policy proposals: tariffs as a powerful tool to revive American industry, protect jobs, and generate revenue for the federal government. In response, some economists argue that tariffs could “distort free markets” or raise consumer prices—concerns echoed by Harris and the ABC moderators at the debate. But Trump’s proposal rests on a long history of successful tariff measures in the United States and around the world. In fact, China, Germany, and Japan have used tariffs and other trade measures in recent decades to build thriving economies and strong domestic industries.

Tariffs have historically served two purposes in the United States: generating federal revenues and protecting domestic industries. Trump’s call to reintroduce tariffs aligns with this tradition. He is proposing that they be used not just for emerging industries and national security, but for protecting America’s entire manufacturing supply chain. This is a necessary approach in the real world, where countries engage in beggar-thy-neighbor policies, rather than free trade. By contrast, the utopian, free-trade ideal pursued by many US policymakers has surrendered the nation’s industrial might. 

Tariffs were central to America’s economic development. The second law ever passed by the US Congress was the Tariff Act of 1789, designed to raise federal revenues and protect American industries from foreign competition. Alexander Hamilton, the first Treasury secretary, understood that tariffs were necessary not just to support new industries, but to protect America’s entire domestic supply chain. His approach—which was subsequently carried forward in Henry Clay’s “American System”—envisioned an economy that thrived on selling goods to America’s middle class, rather than relying solely on exports to foreign markets.

In his speech at the New York Economic Club, Trump cited the high tariffs used during President William McKinley’s administration in the late 19th century. Under McKinley, tariffs generated the bulk of federal revenues, while also protecting a wide range of American industries. This allowed the United States to develop a robust manufacturing base and create a middle class able to afford the goods American industry produced. Trump’s tariff plan seeks to revive this model, extending the protective function of tariffs across the full spectrum of American manufacturing—from consumer goods to advanced technologies—to encourage investment where it’s most needed.

John Maynard Keynes argued for balanced trade as a key to global economic stability. At the 1944 Bretton Woods Conference, Keynes proposed mechanisms to prevent persistent trade surpluses and deficits, which he considered destabilizing forces in the world economy. Ironically, the United States has run up the largest trade deficit in history, and now faces exactly this problem. However, by using tariffs as necessary tools to rebalance trade, Trump aims to ensure that America’s manufacturers can recapture the billions of dollars in home market sales ceded to foreign producers in recent decades. 

The economist Paul Samuelson echoed this view in his seminal paper “Theoretical Notes on Trade Problems,” published in 1964. Samuelson argued that tariffs can slash unemployment and boost national output when an economy is operating at less than full capacity. Tariffs, according to Samuelson, aren’t just a defensive tool, but an essential means of ensuring that investment flows into productive sectors at home, rather than speculative ventures abroad.

In the past, tariffs funded infrastructure projects and public services, while also allowing the United States to develop its economy without relying on high income taxes. Significantly, purchases of domestic goods remained tariff-free.

There is also the question of inflation. High-tariff countries haven’t historically experienced runaway inflation in modern times. Indeed, high-trade-barrier China is today concerned about deflation. Conversely, Trump’s relatively modest tariffs during his first term didn’t lead to higher consumer prices, despite critics’ predictions. Instead, the tariffs succeeded in protecting key industries—such as steel and aluminum—and ensured that American workers had good jobs and the US economy remained resilient.

The real question isn’t whether tariffs should be used, but why they aren’t considered a mainstream measure in America’s economic policy mix. China and Germany have successfully used tariffs to protect their industries and promote national economic growth. The same can once again be true in America.

By making tariffs a core component of his economic plan, Trump is advocating for policies that would grow real wages, kindle faster economic growth, increase America’s industrial strength, and elevate the nation’s global standing. As such, tariffs shouldn’t be viewed as a punitive approach or a tool of last resort. Instead, they should be part of a broader strategy to grow the domestic economy and ensure that investment flows into the productive sectors needed to create good jobs for America’s workers.

By bringing tariffs back into the mainstream, Trump is advocating for a return to trade policies that have proven effective across generations—from Hamilton and Clay to McKinley—and have been advocated by leading economists. With tariffs as part of a broader economic growth strategy, America can build a more balanced, prosperous, and resilient economy.