Understanding When Tariffs Make Sense: A Comprehensive Guide | CNN Business

President Donald Trump’s tariffs have raised eyebrows and sparked worries. Many are concerned that these steep import taxes on the U.S.’s top trading partners may hurt the economy now and could lead to a trade war.

However, it’s important to remember that these tariffs are still new, and their effects are yet to be seen. When speaking to Congress, Trump noted that while they might cause “a little disturbance,” his goal is clear: “Tariffs are not just about protecting American jobs; they’re about protecting the soul of our country.” He believes tariffs will help make America rich and great again.

Historically, tariffs can have practical and sometimes positive uses. Claudia Sahm, an economist at New Century Advisors, explains that these tools exist for a reason. They are typically used to fight unfair trade practices and support local industries.

For instance, if one country produces and sells goods in another country at extremely low prices, it can hurt domestic producers. In some cases, the country producing these goods is financially backed by its government, as has often been seen with China.

Tariffs can also address national security issues, strengthen supply chains, and prevent the monopolization of essential imports — concerns that became more pronounced during the COVID-19 pandemic, according to economists from the Economic Policy Institute.

They argue that tariffs can provide targeted support for critical sectors. Unfortunately, the way tariffs are being applied right now strays far from traditional practices. Alan Wolff, a senior fellow at the Peterson Institute for International Economics, pointed out that using tariffs as leverage to address illegal immigration or drug issues is unprecedented.

Wolff states, “That’s not in the rule book,” highlighting the unusual nature of this approach. Critics warn that applying tariffs to a broad range of goods—covering about 43% of all U.S. imports—poses significant risks.

Douglas Porter, an economist at BMO Financial Group, emphasizes that tariffs could disrupt supply chains and lead to product shortages. Consumers might first feel the pinch at grocery stores, where prices may spike. Additionally, financial markets could see increased volatility.

Due to these developments, BMO recently lowered its forecast for U.S. GDP growth for the year by 0.4 percentage points to 1.8% while adjusting inflation expectations upwards. The core Personal Consumption Expenditures price index is now projected to rise by 0.4 percentage points to 3%.

In January, the core index had shown signs of slowing down, dropping to 2.6% from 2.9%. Overall, Porter warns that a trade war rarely produces winners. His outlook suggests that while some economies may suffer more than others, the U.S. economy will inevitably face negative consequences.

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