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The standard approach to thinking about tariffs begins with an assumption that tariffs in general are mostly zero, or close to it, and that a particular industry is being singled out for tariffs. The underlying idea, sometimes called “infant industry” or “industrial policy,” is to give that particular industry (or a small number of industries) a boost for a time, so that it has a chance to improve its productivity and become more globally competitive.

But of course, that idea of doesn’t describe the shape of the tariffs that President Trump has been proposing and enacting. Richard Baldwin writes at his Substack page about “Teaching Trumpian Tariffs” (October 9, 2025). If you are teaching an undergrad international economics class, and want a spelled-out graphical treatment of Trump’s tariffs, it’s a great resource. But here, I’ll skip the diagrams and most of the jargon and focus instead on Baldwin’s underlying point. Trump’s tariffs are extremely broad, across countries and goods, and also highly variable across countries and goods. How does that alter the implications and analysis of these tariffs?

One implication is that these very broad tariffs are unlikely to lift up US manufacturing, because they apply to imported inputs used by US manufacturing firms, not just to imports final products that would compete with the output of US manufacturing firms. Baldwin writes:

Most governments long ago learned the logic of the effective rate of protection (ERP): raising tariffs on imported inputs undercuts the down-stream industries. Indeed, from the 1960s to the 1980s, many developing nations did use the ERP logic to attract assembly and jobs to down-stream sectors. Classic Import Substitution Industrialisation (ISI) strategies in autos illustrate this well. Malaysia’s low tariff on auto parts but 80 % on finished cars created a domestic “car industry” based on imported Complete Knock-Down (CKD) kits. …

The Trump administration’s approach has flipped that logic. Input tariffs are sky-high – around 45 % on Chinese parts and 50 % on metals – while tariffs on finished autos are lower, typically 25%, with many exemptions for Canada, Mexico, Europe, Korea, and Japan. In effect, this is upside-down ISI. It is protection aimed at producers that ends up discouraging production at home. By taxing the parts and materials that American manufacturers need, these tariffs erode the competitiveness of U.S. assembly plants and shift advantage to foreign carmakers. It’s an unintended gift to producers in Mexico and Canada.

I added the boldface type. As I have noted in the past, many of the biggest US exporters are also the biggest US importers–that is, these big multinationals are “import-so-they-can-export” firms. If you tax the imported inputs for such firms, and their competitors across the world economy do not face such taxes, you are kneecapping the ability of those US multinational firms to compete in global markets.

Moreover, President Trump seems to be laboring under a common misapprehension that most US jobs are manufacturing jobs, although manufacturing is now about 10% of US total employment, and has been experiencing a modest increase during the last decade. But most US jobs are in services, and the future of US employment is increasingly in services. For those workers, tariffs on imported goods have no direct payoff. Again, here’s Baldwin:

[B]ecause tariffs now cover nearly every industrial sector, their effects spill across markets. The American economy is near full employment and there are currently 400,000 unfilled jobs in US manufacturing. The way tariffs work is by increasing the demand for US-made goods and thus pushing up US industry’s demand for US manufacturing workers. But if there is already a shortage of such workers, the likely impact will be a bidding up of wages as well as other input prices. There is a lot to like about the idea of US factory workers getting higher wages, but there is unlikely to be a great deal of job creation. As the Bedouin seller of ice cream cones in the middle of the Sahara Desert found out, it’s about supply and demand, not just demand. … [O]nly about 10% of the US workforce has jobs in goods-producing sectors and tariffs can only protect such jobs. The other 90% just see higher prices … How tariffs came to be the cure-all for middle class malaise is beyond me, but that is how the President is selling them …

When Trump first announced his “Liberation Day” tariffs back on April 2, there were extreme predictions on both sides: it was either the beginning of a new wave of American prosperity or a looming global economic apocalypse. But events take time to unwind. The US economy (and stock market) has been buoyed by extremely high spending related to the new wave of AI technologies, including giant server banks and the electricity supply to support them. The economic energy around AI (and the rising stock market) is not a result of Trump’s tariffs.

Moreover, Trump’s original proposed tariffs from back in April, along with the exceptions to those tariffs, have been reset and renegotiated on what seems like a weekly basis (or maybe more often?) since then. Evaluating their effects in real-time monthly data was always going to be hard, but Baldwin argues that the effects are beginning to become manifest.

Any firm directly involved in the global supply chain has been facing months of high-level uncertainty. When companies are highly uncertain, they typically hold back on hiring. Growth in total manufacturing jobs has been essentially flat this year. A number of the announced Trump tariffs didn’t really begin to bite until August. Many US firms have been trying not to pass along tariffs into consumer prices, but that can’t go on forever. In an earlier post, Baldwin points out that while the recent inflation rate for services (not directly affected by tariffs) is trending lower, the inflation rate for goods (much more affected by tariffs) is trending higher.

The underlying economic forces behind the tariffs grind slowly, but they do happen. Baldwin’s prediction is that in the months to come, the lack of gains in new middle-class manufacturing jobs and the higher prices will become apparent. Specific targeted tariffs (and even more, gaudy announcements of possible tariffs) will continue. But with midterm elections coming up in 2026, Trump will face considerable pressure to declare economic victory and ease back from the more sweeping tariff policies. Baldwin predicts:

I believe we have reached “peak Trumpian tariff leverage.” If the past months have taught us anything, it’s that Trump loves tariffs, but he is a pragmatic, not a fanatic. When tariffs hurt his base, he climbs down while declaring victory. The tariff pain that his base is feeling is already real. And more was put into the pipeline with this summer’s hikes on the EU, Japan, Korea, and others. With midterms approaching, the chances of further across-the-board tariff hikes are slim, in my view. The threats will continue, but credibility is fading.

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