“By hiking tariffs on nearly all imports to the United States earlier this year, President Donald Trump effectively imposed one of the largest tax hikes in American history—and did so without congressional approval.
Now, the Trump administration is reportedly preparing to spend some of the revenue from those tax increases—also without congressional approval.”
“”The most persuasive case against protectionism is not the standard one that undergraduate students are taught in their introductions to international economics, which goes like this: Tariffs distort the allocation of resources and impose a ‘deadweight burden,'” Mokyr wrote in the June 1996 issue of Reason. “The standard argument is certainly correct, but somehow it has failed to persuade many people since it was first enunciated by Adam Smith and David Ricardo.”
The better argument, instead, is that “protectionism and insularism impede innovation, depriving our children of the comfort and security that progress and economic growth bring,” he said. “Free trade and international competition not only lead to a better allocation of resources; they ensure that countries do not lull themselves into the technological lethargy that is the archenemy of economic growth.””
“A decade ago, only a fairly small group of congressional Democrats voted to support President Barack Obama’s free trade agenda. Protectionism was on the rise, helping fuel the campaigns of Donald Trump and Bernie Sanders. Most of the “yes” votes for Obama’s trade program were Republicans.”
“President Donald Trump is considering imposing a 100 percent tariff on semiconductors to incentivize chipmakers to invest in domestic manufacturing, a move that would make it harder to build out American chip fabrication.
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The Chamber of Commerce warns that a 1 percent increase in tariffs on chips and semiconductor manufacturing equipment will increase the construction costs of all announced domestic semiconductor fabrication plants (valued at $540 billion) by as much as $3.5 billion. A 100 percent rate increase, then, could increase construction costs for these projects by $350 billion. Moreover, “additional costs will reduce demand for end market products [and] reduce investments in semiconductor R&D,” diminishing American semiconductor dominance instead of enhancing it.
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Intel, “the only American company [that is] capable of producing leading-edge logic semiconductors,” warned that “Section 232 tariffs could increase U.S. manufacturing costs for essential materials and components.” The Semiconductor Industry Association, a trade association and lobbying group, said that “removing trade and other barriers to U.S. chips in overseas markets,” which account for 70 percent of revenue to the U.S. semiconductor industry, is key to making the expansion of domestic capacity economically viable. Right now, “the complete onshoring of all semiconductor supply chain elements is not feasible, much less in a short period of time,” because “supply chains have evolved over decades and cannot be rearranged overnight or even within a decade””
“While most Americans have not yet felt the tariffs’ full effects, businesses have started to. An August survey administered by the Dallas Federal Reserve found that 60 percent and 70 percent of Texas retailers and manufacturers, respectively, said that Trump’s tariffs were negatively affecting their businesses. Earlier this month, The New York Times reported that Section 232 tariffs on imported steel and aluminum have cost John Deere “$300 million so far, with nearly another $300 million expected by the end of the year.” The company has already laid off “238 employees across factories in Illinois and Iowa.” While anecdotal, John Deere’s struggles are reflected in the 48 percent lower growth in total nonfarm employment from January 2025 to August 2025 (598,000 jobs added) compared to those months last year (1.1 million jobs added).”
“Economists have long known that tax expenditures make our taxes unnecessarily complicated, distort pragmatic economic decision making, and mostly benefit hand-selected political constituencies. My Mercatus Center colleague Jack Salmon and I have spent time demonstrating that most tax expenditures don’t offer broad-based relief but rather narrow carveouts that erode critical tax revenue while tilting the scales toward the special interests that sell whatever we’re nudged into buying.
Tax expenditures stand in sharp contrast to a neutral tax system—one that taxes income and consumption consistently and only once, trusts individuals to make buying decisions without manipulation, and leaves resource allocation to markets. Special-interest tax credits should ultimately be terminated.
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Deducting the interest on mortgage payments has virtually no effect on whether someone buys a house. It mostly leads to larger mortgages and bigger homes for wealthier households. That’s a subsidy for the upper middle class.
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The exclusion of employer-sponsored health insurance (ESHI) payments is the single largest individual tax break, costing in excess of $3 trillion over the next decade. Most employees would take the insurance their employers offer with or without this incentive. It ends up inflating the size and cost of plans, driving up health spending, making it more necessary to insure through one’s employer, and entrenching workers in their current jobs.
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The implications are clear: Tax credits and deductions are generally not harmless ways to help taxpayers. They are costly, distortionary privileges captured by industries and interest groups. They complicate the tax code, mask the true size of government, and fail to deliver the promised bang for the buck.”
“Whether he is waging the drug war, imposing tariffs, deporting alleged gang members, or fighting crime, the president thinks he can do “anything I want to do.””