Trump Says Tariffs Make Us Richer. So, Why Are Most Countries With High Tariffs So Poor?
The U.S. is risking its liberty and its prosperity with such high tariffs.
After an appeals court slapped down President Donald Trump's use of the International Emergency Economic Powers Act (IEEPA) to impose high tariffs without congressional authorization, he complained that if the import taxes go away, the U.S. will become a "third-world nation." That would be quite a trick. Despite the president's repeated claims that high tariffs produce greater national wealth, most countries that adopt them are very poor, while those that keep trade barriers low are wealthier. Third world status might be in America's future, but it's more likely to result from tariffs rather than from their absence.
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Courtroom Tariff Tussle
As Reason's Jacob Sullum noted earlier this week, the U.S. Court of Appeals for the Federal Circuit upheld a unanimous ruling by the Court of International Trade that Trump exceeded his authority when he relied on IEEPA to unilaterally impose stiff import taxes. "Both courts noted that Trump's use of IEEPA, which does not mention tariffs at all, was unprecedented and involved an assertion of authority that implicated the 'major questions' doctrine, which aims to uphold the separation of powers," Sullum wrote.
The tariffs remain in place while the administration asks the U.S. Supreme Court to review the decision. In his usual style, the president didn't just file an appeal, he also fulminated about his loss in court.
"More than 15 Trillion Dollars will be invested in the USA, a RECORD," he posted on Truth Social. "Much of this investment is because of Tariffs. If a Radical Left Court is allowed to terminate these Tariffs, almost all of this investment, and much more, will be immediately cancelled! In many ways, we would become a Third World Nation, with no hope of GREATNESS again."
Trump has repeatedly linked tariffs to the country's wealth. At the Conservative Political Action Conference in February, he insisted the U.S. was at its wealthiest relative to the rest of the world "from 1870 to 1913. That was our richest because we collected tariffs from foreign countries that came in and took our jobs and took our money, took our everything, but they charged tariffs."
High-Tariff Countries Are Poor
But if tariffs are linked to prosperity, it's an inverse relationship, according to a recent report on America's declining economic freedom for Canada's Fraser Institute. The authors, Robert A. Lawson of Southern Methodist University and Fraser's own Matthew D. Mitchell, write: "High-tariff countries are generally low-income countries while low-tariff countries are generally high-income countries. In the high-tariff countries, average GDP per capita is just $9,703 per year," while "in low-tariff countries, it is $43,502 per year."
In 2023, the U.S. had an average tariff rate of 3.3 percent, which put us in the company of such countries as Singapore and Hong Kong (zero percent each), Brunei (0.5 percent), Israel (1.3 percent), New Zealand (1.9 percent), Australia (2.4 percent), and Iceland (3.3 percent). This year's tariff shift has been marked by wild fluctuations. But the average tariff rate on April 15 was 28 percent and is now around 19 percent. That puts the U.S. amongst the likes of Zimbabwe (18 percent), Chad (18.1 percent), Republic of the Congo (18.1 percent), Algeria (18.9 percent), and Egypt (19 percent).
At 28 percent, average U.S. tariffs were higher than those of Djibouti (20.9 percent) and Sudan (21.6 percent) and exceeded only by the Bahamas (32.5 percent).
The U.S. used to have the sort of tariff rates that correlate with prosperity. The Trump administration is now emulating the trade policies of what he has termed in the past "shithole countries."
Non-Tariff Barriers
In all honesty, Trump didn't start this slide and he hasn't been alone in eroding America's trade freedom or in dinging its overall economic liberty. As of 2022, the U.S. stood at 53rd out of 165 countries for freedom to trade in Fraser's Economic Freedom of the World (EFW) index, having fallen from eighth place in 1995. That fall wasn't because of tariffs, which were relatively low at that time. It was because of non-tariff barriers of the sort that Trump complains are imposed on Americans by other governments, but which the U.S. has adopted to its own detriment in recent decades.
"US trade freedom peaked in 1980 at 9.3 on the 10-point scale, began to slide for the next two decades, and then declined more precipitously in the last decade and a half," comment Lawson and Mitchell. "Much of this decline was driven by controls on the movement of capital and people. In particular, the US imposed steeper capital controls in 2009 and more stringent limits on the freedom of foreigners to visit in 2014."
That is, despite relatively low tariffs before 2025, the U.S. wasn't as wide open as many people—Trump included—believe. Lawson and Mitchell point out that "with the exception of China, every country Trump has singled out for treating America unfairly is more open to trade than the United States itself."
That's unfortunate, because free trade doesn't just correlate with current prosperity; as seen from the list of which countries have high tariff rates and which have low ones, it helps countries to become wealthier.
"Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards," Harvard University economist Greg Mankiw wrote in 2006.
Declining Economic Freedom
Anything that stands in the way of trade—whether it's high tariffs, controls on the movement of people and capital, or other barriers to investment and exchange—deprives people of the freedom they need to start businesses, create jobs, and improve their lives. High U.S. tariffs have a further perverse effect in that they tax Americans, effectively filling government coffers by punishing our own people for seeking the goods they want beyond the border.
Eroding trade freedom reduces total economic freedom, of course. This year's higher tariffs are predicted by Lawson and Michell to bump the U.S. from 56th place to 76th place for trade freedom in the EFW index, and cause "the US's overall economic freedom rank to fall from 5th to 10th."
That will be a real tragedy. Economist Deirdre McCloskey observed in 2016 that the enrichment and growth in human flourishing of recent centuries can be attributed to "liberalism, in the free-market European sense." We've become wealthy from the freedom to trade domestically and across borders.
The U.S. risks third-world status as the president warns that danger lies in adopting the illiberal trade policies of countries that remain poor largely through their rulers' bad decisions.
