Mid-Monthly Outlook: November 2025
Any way you slice it, a tariff is a tax. There are many reasons given for why a government would impose tariffs, and there are just as many opinions about whether they’re good or bad. To add to the confusion, tariffs are a political issue that create divisions that many would prefer to avoid, so an honest and evidence-based discussion is rarely had. But we’re going there.
Motivation for Tariffs
Why would a government choose to tax imports from foreign countries? Possible reasons include: to protect local industries, to create jobs, to push back against “unfair trade,” to raise tax revenue, for national security, etc. These reasons sound good to most people, which is why they are political. What politician wouldn’t want to look like they’re fixing these issues? But are these valid reasons; meaning, do tariffs work like this?
Let’s say a U.S. auto company can make a car for $50,000, with a small profit. But China can make a similarly equipped car for $40,000. The U.S. consumer benefits by having the option to buy a car for $40,000. But if a $20,000 tariff on Chinese cars is initiated, now that car costs $60,000. The U.S. consumer now has the choice of buying a U.S. car for $50,000 or the Chinese car for $60,000. The $40,000 choice is gone.
In this example, the U.S. auto company may appear to “win,” because their cars are now competitively priced vs. the foreign manufacturer. Jobs are “saved,” they argue. But in reality, cars now cost more and it’s most likely that they will sell fewer cars, making less profit, leading to job layoffs. In other words, the tariffs caused both inflation in car prices and higher unemployment. Both the U.S. and China lose as global trade diminishes. It’s also likely that China retaliates with tariffs of its own, most likely on items or services that the U.S. consumers want.
Who Pays the Tariffs?
Technically, the tariff is paid by the company that imports the foreign made goods. But several options can occur that shifts who the ultimate payer of the tariff really becomes. Let’s say the U.S. puts a tariff on computer chips from Korea. The U.S. company can ask/demand that the Korean chip maker lower their price by the amount of the tariff. In that case, the Korean chip maker takes the hit of the tariff. But they unlikely can afford to sell for the tariff-reduced price and maintain profitability. So, the importer instead tries to pass the tariff on to the U.S.-based manufacturer who uses the chips to make a final product. They need the chips, so they pay the importer’s tariff. But the U.S. based company can’t afford to eat the entire increased cost, so they have to increase the price of their final product, which means the consumer has to pay it. The evidence is pretty clear. Initially, the foreign seller and the domestic buyer try to absorb tariffs to maintain market share. But, fairly quickly, as the tariffs prove to be semi-permanent, they are forced to pass the tariffs on to the final U.S. consumer.
What Do the Experts Say?
So far, these are just my elementary examples to demonstrate tariffs. Politicians and pundits make all kinds of claims and conclusions about tariffs depending on their needs and motivations. But the experts who thoroughly study tariffs over history have overwhelmingly concluded that tariffs are harmful. In 2024, when the most recent spate of tariffs was announced, 16 Nobel Prize-winning economists signed a letter stating that tariffs would cause harm to the economy including price inflation, slower economic growth, and rising unemployment. Similar conclusions come from deep thinkers at the Cato Institute, the Peterson Institute for International Economics, the American Economics Association, the U.S. International Trade Commission, and others. Some will try to argue that these studies are just from liberal academics that are biased and politically motivated. That’s just not true. Most of these are bipartisan organizations that are interested in rigorous, evidence-based, studies.
Today, the tariffs are the highest the U.S. has seen since the Smoot-Hawley tariffs of 1930, put in place during the Great Depression. Nearly all studies have shown that those tariffs only made the Depression worse, and we should have learned from that mistake. This time could somehow be different, but I would bet on research and history. It’s mostly likely that today’s tariffs will slow the economy, create price inflation paid for by the consumer, raise unemployment, and be considered a mistake in hindsight.