Foreign invesments and tariffs

Tariffs and their effects on foreign investment in the United States

MacroXX

Apr 09, 2025

∙ Paid

In this post, we examine the potential impact of President Trump's tariffs on foreign investment in the U.S. economy.

Let’s begin by exploring the theoretical impact of tariffs on a country’s economy and its domestic dynamics.

Tariffs can significantly affect a country's economy in several ways:

Economic Growth and GDP

Tariffs tend to reduce economic output by increasing costs for businesses and consumers.

Consumer Prices

Tariffs raise the cost of imported goods, leading to higher prices for consumers. This disproportionately impacts lower-income households.

Employment

Higher costs and reduced competitiveness can lead to job losses. The 2018–2019 trade war resulted in a loss of 142,000 full-time equivalent jobs in the U.S.

Business Sentiment

Tariff policies often create uncertainty, negatively affecting business sentiment and investment decisions. Rising trade policy uncertainty has been shown to amplify the economic impact of tariffs, contributing to slower growth.

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Fiscal Impact

While tariffs generate significant revenue, they also lead to dynamic reductions in tax revenue due to slower economic growth.

In summary, while tariffs may provide short-term revenue or protection for specific industries, they lead to lasting economic harm through reduced growth, higher consumer costs, job losses, and weakened global trade competitiveness.

It is worth noting that President Trump's administration is adamant about implementing tariffs, as they believe that, in the long run, the United States will emerge victorious due to a reshaped global economic order. For now, the short and medium-term strategy remains somewhat unclear in the short run.

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