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Ask an Expert: In What Ways Might Tariffs Impact the U.S. Economy?

By Clare Becker

January 16, 2025

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President-elect Donald Trump has brought tariffs—essentially taxes levied on products for sale that are entering or leaving a country—back into the national conversation.

Trump has proposed “Day 1” tariffs on Mexico, Canada, and China for all incoming products to try to stop the influx of migrants and drugs from these countries.

But some economic and political experts are more cautious, suggesting that such a measure has the potential to shift the cost burden onto consumers and businesses, as well as affect relationships with U.S. allies and adversaries. Others, however, maintain that tariffs can have significant positive outcomes for the country.

Q: How might tariffs impact the U.S. economy? What short- or long-term shifts in trade dynamics could tariffs cause?

A: Tariffs can offer short-term gains for the industries they protect, helping to maintain domestic employment and revenue by shielding these firms from foreign rivals.

However, that protection comes at a cost. Consumers often face higher prices as import taxes drive up the cost of goods, and these price hikes can be magnified if trading partners retaliate with tariffs of their own. Over time, insulating businesses from competition can breed complacency and reduce the incentive for efficiency and innovation. Ultimately, while tariffs can prop up specific sectors of the economy in the short run, they can potentially increase inflation and decrease investment and productivity over the long run.

Fabio Gaertner is the Cynthia and Jay Ihlenfeld Professor for Inspired Learning in Business and a professor of accounting and information systems at the Wisconsin School of Business. Gaertner’s research includes the effects of executive compensation and taxes on corporate outcomes, asset prices, and accounting information, and examines how different ownership and governance features interact with explicit management incentives in shaping managers’ decision making. Gaertner has received numerous awards for his teaching, including being named a Poets & Quants Best 40 Under 40 MBA Professor in 2020, WSB’s Erwin A. Gaumitz Distinguished Faculty Teaching Award in 2021, and the University of Wisconsin–Madison’s Distinguished Teaching Award in 2023.


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