Shannon K. O’Neil
In a matter of months, the Trump administration has rewritten the rules of U.S. trade policy. It has imposed blanket tariffs on nearly every country, starting at ten percent and rising as high as 50 percent. Levies on a host of products, such as steel, aluminum, cars, and car parts, have raised these trade barriers even further. At an average effective rate of around 18 percent, U.S. import taxes are now the highest they have been in nearly a century.
“China beats you with trade, Russia beats you with war,” U.S. President Donald Trump mused in August, quoting Hungarian Prime Minister Viktor Orban. Protectionism is Trump’s answer to both challenges. He sees the revenue from tariffs as a way to win at the cash register; he sees the boost to the domestic production of military equipment and the minerals, materials, and technology that go into it as a path to dominating on the battlefield.
The administration’s levies will likely have some of their desired effects. They will fundamentally change the United States’ position in the world economy, untangling the country, at least in part, from global supply chains. Consumer goods companies will make more of their products in the United States to capture a slice of its consumer market, which is still the largest in the world. Suppliers of steel, aluminum, minerals, and other strategic materials will expand their U.S.-based operations to take advantage of rising domestic prices.
But the damage that tariffs will inflict will be far greater than the benefits they bring. Over the last 50 years, the United States’ integration into global supply chains has fueled economic growth. Detaching from these supply chains will raise costs and reduce quality, limiting growth and competitiveness. The U.S. defense industry will not be spared the effects of higher prices, lost suppliers, and dwindling foreign markets. Producing weapons and military equipment—and building new factories—in the United States will become more expensive. U.S. allies, eager to strengthen their own defense industries and mistrustful of trade with the United States, could choose to spend less on American weapons. Worryingly, U.S. companies face these threats to their business models just as Washington, contemplating a future of drone- and AI-driven warfare, needs their innovation more than ever.
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