In today’s Finshots, we dive deep into the side-effects or rather long-term effects of tariffs.

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The Story 

You must be aware that soon after taking office, Trump did what he loves the most: imposing tariffs. He proudly announced a 25% tariff on all steel and aluminium imports from around the world. And he didn’t stop there. He also threatened to slap an extra 25% tariff on imported copper. 

Naturally, this didn’t sit well with America’s major trading partners. And in response, the EU, Canada and China slapped retaliatory tariffs on US imports. But, Trump wasn’t ready to throw in the towel just yet, so he made it clear that the US would slap reciprocal tariffs on any trading partner that would mirror the tariffs on US products. 

But before we go further, here’s a quick breakdown of what tariffs are and how they work.

Tariffs are essentially taxes on imported goods. The companies that bring foreign goods into the country pay a percentage of a product’s value as tax to the government. For example, a 25% tariff on European goods means a product worth $10 has an additional $2.5 charge, now costing $12.5 for US consumers. Now essentially, tariffs are an economic tool meant to protect domestic industries from cheaper imports. Because firms may choose to pass on some or all of the cost of tariffs to customers. This makes imported goods expensive and forces customers to opt for cheaper domestically manufactured alternatives.

But then there can be a flip side to this too. The imported product may be more functional than the homemade one because manufacturing for it hasn’t taken off very efficiently. And something similar is playing out in the US right now.

Trump’s new tariffs could drive up consumer prices in the US and around the globe. And that’s exactly what’s giving economists sleepless nights. 

So then why is he so hell-bent on imposing them, you ask?

Well, for Trump, tariffs are a way to boost US manufacturing and protect jobs, raise tax revenue and grow the domestic economy. With tariffs in place, Trump also intends to restore America’s trade balance with its foreign partners. And he’s particularly focused on the EU, where the US had a $213 billion trade deficit in 2024, something he once called “an atrocity”.

But last week, something ironic happened.

The US Department of Agriculture requested certain EU nations — Denmark, Sweden, Finland, the Netherlands and Lithuania, to export eggs to the US. That’s because bird flu has wiped out millions of hens, causing a massive egg shortage and soaring prices in the US. And that has sort of given the European social media a field day, mocking Trump and terming his request “door-to-door begging”.

Seems like Trump is having to eat humble pie, no?

Just a few days ago he was threatening the EU with tariffs and now the US needs European eggs. However, the bigger takeaway here is that we live in a deeply interconnected world where trade between countries and continents is indispensable.

And that’s where tariffs come in. They may seem like a protective shield, but they often come with hidden costs.

Take Trump’s proposed 25% tariff on copper. It is already causing ripples in the market. The London Metal Exchange (LME), a key commodities exchange for industrial metals, has seen copper prices surge past $10,000 per tonne. Meanwhile, traders in New York are scrambling to secure copper supplies, pushing up prices on the Commodity Exchange (Comex), the primary futures and options market for metals in the US. The price gap between LME and Comex copper futures has hit a record $1,254 per tonne.

What does this mean?

See, Copper is a critical raw material used in technology, construction and renewable energy. A price spike means higher costs for everything from electric vehicles to power grids, making the US domestic industries less competitive. Plus, US manufacturers importing copper will have to bear the extra cost or pass it on to consumers — the very people Trump intends to protect.

But that’s not all. While Comex warehouse stocks have risen, LME warehouse stocks are depleting. That suggests traders are already moving metal out of London into the US to avoid future tariffs. So in the short run, Trump’s trade policy is incentivising a rush to stockpile copper before levies hit. And in the long run, this could choke off supply and create an artificial shortage, driving prices even higher.

And let’s not forget history. 

Back in 2018, when Trump imposed tariffs on steel and aluminium, it did a little bit to boost manufacturing jobs. For instance, tariffs on washing machines created an estimated 1,800 jobs at firms like Samsung, according to a study in the American Economic Review. But this also came at a significant cost to the economy. These tariffs also raised costs for US businesses, disrupted supply chains, and invited retaliation from trading partners like China and the EU, which in turn raised the washing machine prices for consumers. Consumers ended up paying $1.5 billion more every year for washing machines. Or to put it another way, each new job cost the economy over $800,000 on average due to higher prices.

Copper could meet a similar fate, hurting US manufacturers more than helping them.

There are other instances in the past as well where tariffs had unintended consequences. Take the infamous Chicken Tax. 

Back in the early 1960s, American poultry farmers had embraced industrial-scale production, slashing costs and therefore flooding European markets with cheap chicken. This didn’t sit well with European farmers, particularly in France and Germany, who struggled to compete. So, in a bid to protect their domestic poultry industry, they slapped hefty tariffs on American chicken imports.

Furious at what it saw as an unfair trade barrier, the US imposed a 25% tariff on light trucks, and a few other items exported by the same European nations to the US. The truck tariff, in particular, hit the EU hard, especially Germany’s Volkswagen, whose pickup trucks were gaining popularity in the US. And just like that, a dispute over chicken escalated into what became known as the Chicken War.

At the time, the goal was to protect American automakers from the surge of small, fuel-efficient European vehicles. But decades later, the Chicken Tax ended up distorting the US auto market in ways no one anticipated. For one, it made foreign trucks significantly more expensive, giving domestic manufacturers like Ford, General Motors and Stellantis a near-monopoly on the segment. And while that may sound like a win for the US auto industry, it also removed competitive pressure, which could have led to better innovation and pricing.

Also, to combat tariff barriers, some foreign automakers even resorted to bizarre loopholes, like shipping their trucks as passenger vehicles and modifying them upon arrival to the US to avoid the tariff.

The end results were higher costs, inefficiencies and a market that evolved not based on consumer demand but on artificial government intervention.

So, while tariffs may seem like a powerful economic tool in the short run, history has shown that they often come with unintended costs. And as Trump looks to tighten trade restrictions while simultaneously seeking European eggs, the irony couldn’t be more obvious. Tariffs may look like a shield for domestic industries, but they could also often turn into self-inflicted wounds.

What are your thoughts?

Until next time…

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