Trump’s unilateral tariffs: Time for Congress to do its job

Over the weekend, President Trump announced 25 percent tariffs against Canada and Mexico, though Canadian energy imports will face a lower 10 percent rate. He also announced a 10 percentage point increase on existing tariffs against China. Then on Monday, Trump delayed the Mexican tariffs for a month. The situation remains fluid. As of right now, it is still the largest tariff increase since the 1930 Smoot-Hawley tariffs, nearly a century ago.

Why does Donald Trump like tariffs so much? It’s clearly not on the merits. When he talks about trade deficits, or raising revenue, or being treated badly by another country, all he’s doing is rationalizing a conclusion he reached long ago

While Trump is unlikely to ever admit he is wrong about tariffs, the rest of us can learn from his mistakes. This includes Congress, which needs to take back the taxing authority it should never have delegated away in the first place.

This post looks at Trump’s tariff rationalizations and shows how, on his own terms, the tariffs will fail. But if readers have only one takeaway, it is that Congress needs to reassert its place in the separation of powers.

Retaliation: Other countries nearly always retaliate against tariffs. It happened with the 1930 Smoot-Hawley tariffs, which led to a 60 percent decline in global trade. It happened four times with Trump’s China tariffs. And it is happening now. Trade policy is not a one-play game. It is a repeat play game. You can get away with stiffing a contractor or an attorney once. But over time, you develop a reputation.

Canada has already announced retaliatory tariffs against $155 billion of American goods, with an emphasis on products from Trump-supporting states, like Tennessee whiskey and Florida orange juice.

Diplomacy: The Canadian and Mexican tariffs almost certainly violate the USMCA, which Trump himself signed in 2018. The best-case scenario here is that our allies think that only Trump is untrustworthy, and not the American government.

Countries around the world are deciding right now how much America’s word is worth, including those torn between allying with America or with China.

Trade deficits: Economists of all political stripes know that trade deficits have nothing to do with a country’s economic health. They don’t help, and they don’t hurt. This is because when people trade, it is because they get something worthwhile in return. Otherwise they wouldn’t agree to a trade in the first place.

Tariffs also strengthen the US dollar relative to other currencies. All else equal, this will increase the trade deficit, which, again, does not matter either way for economic health. A strong dollar makes exports more expensive, which means fewer sales for US companies. It also makes imports more affordable, which means more buyers of foreign products. Though this effect is relatively small, it is still enough to undercut tariffs’ effectiveness.

It also doesn’t help Trump’s case that America actually runs a trade surplus with Canada, except for one major good: energy. Yet, the only exemption from the 25 percent blanket tariff is Canadian energy, which has a 10 percent tariff.

Raising prices: The lower 10 percent tariff on Canadian energy is also Trump’s admission that yes, tariffs do raise consumer prices. Look for gas prices and home heating prices to go up this month, though by less than they would under a 25 percent tariff.

If you prefer a real-life story to economic theory, trade economist Doug Irwin, who teaches at Dartmouth University in New Hampshire, shared on Twitter a notice he got from his propane provider, which is based in Canada. They are raising their prices by the amount of the tariff.

Tariffs aren’t strictly inflationary, because they don’t affect the money supply. But they do raise prices of affected goods enough to have a noticeable effect on inflation indicators, especially when the tariffs are against America’s three largest trading partners. There will also likely be a noticeable bump in the CPI and PCE inflation indicators when February data become available. As I recently wrote, it is a good thing the Federal Reserve didn’t cut interest rates on January 29.

Raising prices is the point of most tariffs. By raising import prices, consumers turn to domestic suppliers instead, at least in theory. This leads us to:

Reshoring: Tariffs give domestic producers room to raise their prices too, up to the amount of the tariff, without fear of competition. So even if Irwin’s propane provider was American, he’d still likely be paying more to heat his home.

There is another reason why reshoring to America happens a lot less than tariff advocates think: when companies move operations out of a country due to tariffs, they don’t usually move back to America, where even unskilled labor is expensive. They move to a different low-labor-cost country that hasn’t yet been hit with tariffs.

Fentanyl: The government can’t even keep drugs out of prisons. The US-Canada border is 5,525 miles long. The US-Mexico border is 1,951 miles long. If the government cannot keep drugs out of a confined environment where prisoners are kept under lock and key and surveilled for 24 hours a day, then it is unrealistic to think that the government can keep fentanyl smugglers away from more than 7,000 miles of border, especially with an indirect method like tariffs.

Tariffs are also poorly targeted. In 2022, 89 percent of fentanyl smugglers were US citizens, and they mostly come through legal US entry points. Trump’s tariffs will harm them, but no more than any other Americans. Tariffs on cars and groceries certainly won’t deter them from smuggling.

The root problem here is drug prohibition. Drug abuse is bad. Prohibition is worse. Ending prohibition would do far more to lessen damage from fentanyl and other drugs than would more enforcement, let alone more tariffs.

Revenue: Tariffs provided the bulk of federal revenue in the 1800s, when the federal government was about 2 or 3 percent of GDP. Today, the federal government is about 23 percent of GDP. According to the Congressional Research Service, tariffs provided only 1.57 percent of federal revenues in 2024, and that is after Trump doubled them in his first term, and Biden added his own tariff increases.

Making tariffs even more unrealistic as revenue generators is that they have built-in diminishing returns. The higher the tariff, the less people will import. The steeper the rate increase, the steeper the dropoff in imports, until imports (and revenues) hit zero. This is the point of most tariffs. They are supposed to discourage imports. Depending for revenues on something you’re trying to reduce is a poor approach to policy.

Step up, Congress: America has a separation of powers for a reason. Putting too much power in one place is a dangerous form of government. The Constitution gives all taxing power to Congress, and none to the president. Over the years, Congress passed several bills that granted tariff-making powers to the president. For these tariffs, Trump declared an emergency under the International Emergency Economic Powers Act of 1977 (IEEPA). Congress should amend the IEEPA to remove its grant of tariff-making powers to the president. Congress should also repeal parts of several other bills, as outlined in CEI’s new Agenda for Congress.

There may be a role for the judiciary as well. Law professor Ilya Somin thinks these tariffs may be vulnerable to challenges on nondelegation or major questions doctrines. Although previous litigation against Trump’s national security tariffs failed, that was before recent decisions such as Loper Bright that made the judiciary a little less passive.