In recent weeks, the Trump administration has imposed tariffs on the EU and countries including Australia, Canada, China and Mexico. Many economists — including economics professor Douglas Irwin — disagree with the implementation of the tariffs and argue they have a negative impact on the U.S. economy.
Prior to joining the Dartmouth faculty, Irwin worked on trade policy issues while on the staff of President Ronald Reagan’s Council of Economic Advisors and in the International Finance Division of the Federal Reserve System in Washington, D.C. The Dartmouth sat down with Irwin to discuss the consequences of the tariffs and his predictions for the global economy.
Have the impacts of the Trump administration’s tariffs — such as the stock market’s recent decline — been in line with your expectations?
DI: No one really knew what the extent of the tariffs would be. No one had great foresight in terms of how the stock market would react, at least in terms of magnitude.
I think the markets and economists and other observers were surprised by the extent and the scale of the tariffs, and the market is reflecting that. The markets are definitely spooked in terms of the sheer destruction of wealth that’s taken place over the past two days alone.
In your op-ed in The Wall Street Journal titled “‘Reciprocal’ Tariffs Make No Sense,” you wrote, “The U.S. shouldn’t have stupid tariff policies just because other countries have stupid tariff policies.” Do you predict an increase in retaliatory measures, and how do you believe the recently imposed tariffs will influence future trade relations?
DI: We’ve already seen retaliation from China. We’re expecting some retaliation from the European Union. Canada has indicated they’re willing to retaliate if we impose the 25% tariffs against them. So we have yet to see how much retaliation there’s going to be, but there’s already indication that there’s some in the works, and maybe that’s a bargaining chip on their part too.
In terms of the negotiations, the administration has given a lot of mixed signals. Sometimes you hear them saying, “We need [tariffs] to restore jobs or achieve whatever objective we want, so there’s nothing to negotiate because these are important for America’s national interests.” But other times you hear the President or his aides saying, “Actually we’re open to a deal and if you come to us and say ‘we’ll cut our tariffs if you cut yours.’”
The White House has stated that tariffs are a way to hold Canada, China and Mexico accountable for “halting illegal immigration” and “stopping poisonous fentanyl and other drugs.” Can tariffs be effective for these goals in the long run?
DI: It’s not that the tariffs are designed to stop those things. The tariffs are designed to inflict some pain on those countries so they take actions in a non-trade way to affect these things. The idea would be, you’re going to punish Mexico [and] Canada, and they’re going to beef up enforcement of the border, both for drug flows and migration.
However, I don’t think that’s appropriate in this case. In terms of migrant flows and fentanyl flows across the U.S.-Canada border, it’s basically zero. I think there’s no justification for hitting Canada. With Mexico, we’ve always had difficulties, [but] I think a cooperative approach with more carrots than sticks is probably better.
Do you believe that there is merit to the argument that tariffs reduce the United States’ dependency on foreign countries?
DI: There is some merit because it’s making the U.S. more self-sufficient, but there’s a big problem with that argument in that you can’t be self-sufficient in everything. Cut[ting] off imports of certain products can harm economic independence in other areas by raising costs of production for U.S. firms in a way that’s detrimental to domestic production.
If your goal is more economic independence, pulling away from the world is a way of achieving that. I don’t think that’s a good goal. I also think that if we want to be more independent, there are better ways than imposing those tariffs. You might be gaining more “independence” in some sectors of the economy, but you’re inflicting a lot of harm on others.
If you could advise the Trump administration on the next best steps when it comes to tariffs, trade and inflation, what advice would you give?
DI: I wouldn’t even bother to give them advice for a very simple reason: President Trump is impervious to advice on trade.
There have been a number of books written about his first term in which some of his economic advisors try to explain why a trade deficit is not a bad thing, or how tariffs are not taxes on other countries but taxes on American citizens who buy the goods. He’s been presented with that information, and he rejects it, and he thinks he is right, so there’s no point in a conversation.
This interview has been edited for clarity and length.
