Republicans Should Rally Around Tariffs

Acknowledging the benefits of the policy can unite the coalition

President Trump’s determination to impose tariffs on all U.S. trading partners is his most sustained challenge to Republican Party economic orthodoxy. The budget benefits from tariffs so far—without raising real inflation—should serve as a proof point that the new Republican coalition can rally around the new direction. 

Conservatives who grew up in the free-trade church are reluctant to embrace a new liturgy. Yet that is exactly what they will have to do.

The new GOP coalition that Trump has created contains large numbers of people who want robust government action to bring industry and jobs back to America. Tariffs are perhaps the most market friendly and least distortionary way to do that. Those two facts create tension in the Republican Party coalition. But an embrace of the policy needs to become part of the new conservative-populist coalition’s agenda. 

Old Guarders will protest, arguing that tariffs won’t bring that investment back and will hurt the economy. But that’s not what we are seeing so far. 

Tariffs brought in almost $30 billion in revenue in July—before all of the tariffs have even gone into effect—nearly four times what they were raising each month before Trump’s new levies. That project to about $360 billion over a full fiscal year, an amount that would significantly reduce the annual deficit. 

These changes have not hurt the economy, either. The stock market continues to surge to record highs. The most recent employment report shows unemployment remains at a low 4.2%, and the slowdown in monthly job growth is simply proof that change takes time to work its way through a large economy  

Even inflation is under control. Inflation remains at a relatively low 2.7%, and a closer examination reveals that the rate in the months since Trump took office is even lower.  

This is especially true for the goods that experts had warned would cost more after tariffs. The price index for all goods less food and energy has increased by 2.2% since Trump was inaugurated. Prices for new and used vehicles have actually declined. 

The parade of horribles the Old Guard and their liberal allies have forecast has so far not transpired at all. 

Meanwhile, the domestic investment gains that Trump promised are anecdotally arriving. The semiconductor powerhouse TSMC says it will dramatically expand its investment in factories that make advanced chips in America and is also speeding up production in its existing U.S. facilities. Apple is also dramatically increasing its U.S. production capacity, and this will surely be followed by other multinational corporations. 

The real impact of tariffs will likely arise only after the amount and scope of the levies are settled, but economic logic suggests that many companies would rather switch to the U.S. than fight.  

Politically, this gives the Republican Party an opportunity to run on the benefits of tariffs to the voters who elected them in 2024, particularly as these changes become entrenched. Wages and employment opportunities for native-born Americans will rise as the industries they are comparatively advantaged for become larger. The GOP’s long shift to a working-class-dominated party will be cemented when those voters—and others who can still switch—find their economic advancement comes from Republican economics. 

This will take a while to occur. It takes time to build or expand factories, but when they do new, decent paying jobs with benefits will compete with existing firms for native-born labor. That will help drive wage increases throughout the economy, as always happens in a tight labor market.

It is crucial that illegal immigration is reversed, with those already here leaving through self-selection or deportation. Failure to do that will mean employers can fill their labor needs with the seemingly endless supply of people for whom substandard American wages are actually a step up. But if Trump ignores the business community and listens to his voters instead, by 2028 employers will have gotten the message and started to invest in hiring and training native Americans.

That’s what happened during the Reagan Administration. In response to the Gipper’s sanctions, Japanese companies began to establish “transplant” factories that would assemble automobiles using many imported parts. This move essentially shared the gains of global trade with American workers, making continued Japanese involvement in the U.S. car market politically palatable. 

This investment started almost as soon as Reagan capped the number of Japanese cars that could be exported to America. The first Japanese transplant plant opened in 1982, with three others following by the time Reagan left office in 1989. Today, foreign auto companies operate 24 plants in the United States, employing hundreds of thousands of workers including those at their American suppliers.

Done right, tariffs can also avoid some of the worst features of any alternative measure to reshore vital industries, such as the type of subsidies pushed by the Biden administration. Biden’s subsidies only favored politically directed investments, often of a type that would not produce more jobs. The drive to eliminate gas powered vehicles was a perfect example of that: auto workers knew that killing the jobs they have would not be made up by the promise they could work in new plants making electric vehicles.

Subsidies are also prone to interest group capture and insider manipulation. When a group knows they can obtain profits from gaining control of a governmental entity, they will lobby fiercely to get what they need. The opportunities for corruption, both personal and partisan, are obvious. 

Uniformly applicable tariff rates that do not vary by country or industry, on the other hand, are simply a type of Pigouvian tax on trade of the sort that mainstream economists always recommend. A sensible Old Guard would focus on pushing for these rather than opposing tariffs outright, thereby increasing the chance that they could become a transparent and efficient method of attracting investment.