Protectionists can appeal to intuitive economic logic. Tariffs are a tax on imported goods, but not on domestically produced goods. By increasing the relative price of imported goods, price-sensitive consumers will substitute away from imports. This will increase the competitiveness of domestic producers, in turn boosting the market demand for manufacturing labour services. Manufacturing employment and wages will therefore increase.
Protecting domestic manufacturers from competing with imported goods is, indeed, a major part of the economic story. But two other factors are of first-order importance. Because US manufacturers import a good deal of what they need to produce final goods, tariffs are not just a tax on consumption – they are also a tax on business investment. Taxing investment should reduce the competitiveness of domestic manufacturers, putting downward pressure on the demand for manufacturing labour services. In addition, though they are often discussed as static events, tariff increases should be thought of in a dynamic context. Other nations will retaliate, which will hurt domestic exporters and reduce the demand for manufacturing workers.
…
A look at the import statistics should give protectionists immediate pause. In each quarter of the years 2023 and 2024, between 54% and 56% of US imports consisted of industrial supplies and materials, capital goods, and automotive engines and parts. Or consider the case of steel. The administration’s steel tariffs might help US steel producers. But for every one job in steel production, there are 80 jobs in US industries that use steel. Among others, US manufacturers of household appliances, farm machinery, mining machinery, batteries, and hardware are steel intensive, and will face higher production costs due to steel tariffs (Russ and Cox 2018).