Trump’s Tariffs Are Not Your Great-Grandfather’s Protectionism
The usual chorus of critics has returned to form. As President Trump pushes ahead with a sweeping new round of tariffs, pundits, professors, and corporate lobbyists are once again declaring that America is veering into the ditch of economic ignorance. Their refrain is familiar: tariffs will stifle innovation, protect inefficient monopolies, and reward corporate rent-seekers.
But something is off. If Trump’s tariffs are such a favor to entrenched business interests, why are those very businesses sounding the alarm? Why are they slashing forecasts, pulling guidance, and getting punished in the stock market? And if the tariffs were truly shielding corporate America from competition, why are valuations collapsing instead of soaring?
According to a recent survey by Bank of America, the sentiment among corporate executives hasn’t been this gloomy since the financial crisis. The ratio of positive to negative comments on macroeconomic conditions during this earnings season is on track to be the worst since 2009. Companies that cut guidance are being punished severely, and many are opting to say nothing at all—a developing “information vacuum” reminiscent of the early pandemic. Nearly 27 percent of S&P 500 firms have cut their guidance for 2025; only nine percent have raised it. Automakers, in particular, have led the retreat.
This is not what rent-seeking looks like. What this suggests is a profound recalibration underway in the U.S. economy—not to insulate firms from competition, but to compel them to restructure their cost bases, reorient their supply chains, and shift value creation back inside American borders.
Trump’s Tariffs Will Not Stifle Innovation
Critics also love to argue that tariffs will dampen innovation. But is that how innovation works in the United States today? Does anyone expect Google, Netflix, or Moderna to stop building world-changing products just because there are tariffs on imported goods? Hardly. These companies innovate because of domestic dynamism, competition, intellectual property protection, and access to capital—not because of open borders for imported washing machines or steel.
Even Apple—which does rely heavily on imports like the iPhone to enhance its bottom line—seems unlikely to cease innovating simply because tariffs may make other imported phones more expensive. It does not seem remotely plausible to argue that Apple would not have produced its paradigm-shifting smartphones or its tablets and laptops if there had been tariffs in place.
Or take carmakers. Traditionally, auto tariffs were seen as protecting domestic monopolies or oligopolies and therefore encouraging automakers to be “fat and lazy.” While this might have been true in the U.S. before the 1970s or in many European countries in the aftermath of the Second World War—where consumer choice was limited and national governments actively promoted national champions like Renault or Peugeot—it’s not true of America today. We have 20 different companies that operate 55 light assembly plants across the United States. You could ban imported cars altogether and there would still be vigorous domestic competition.
If anything, tariffs may enhance innovation by increasing the incentive to produce at home, improve productivity, and reduce over-reliance on foreign suppliers. In critical sectors like semiconductors, energy technology, and biomanufacturing, tariffs are acting less like crutches for old industries and more like catalysts for new strategic investment.
The model economists use to argue for tariffs as depressing innovation and competition typically begins with the assumption of a small, open economy that has little domestic competition. If you enlarge the economy and include vigorous competition by domestic producers, the classic case against tariffs falls apart. In other words, the map is not the territory; and when you apply tariffs to the actual territory of the U.S. economy, the results are quite different than the models predict.
Even the stock market’s reaction bolsters this view. The S&P 500 has fallen nearly 15 percent since February. If tariffs were a giveaway to big business, equity values would be rising in anticipation of protected profits. Instead, markets are adjusting to the fact that margins may shrink as companies invest more at home and pass fewer costs onto consumers. That’s not corporate rent-seeking. That’s a shift of power from capital to labor, from global supply chains to domestic production.
For decades, the dominant economic consensus treated tariffs as the first step on a road to decline. But the real story in 2025 is this: tariffs are not insulating America from the world. They are forcing America’s largest corporations to stop relying on the world and start reinvesting in America. And they are forcing other countries to open their markets to U.S. goods And for once, that looks like a policy whose benefits might flow not to Wall Street, but to the people who actually make things.
