Another Look At Tariffs Through The Lens Of Productivity

All of us try to improve our productivity. Most often, this means managing “kitchen table” issues — trying to have more money left at the end of the month. Really, there are only two ways to make that happen: earn more income or spend less money (or a combination of both).

Each month, we look at our income and expenses and try to keep them in balance or ideally produce a surplus. This is a form of household productivity. We think about how to increase income (get a raise, work a second job, or change jobs), and we think about how to cut or delay expenses (reduce discretionary spending, delay repairs, downsize housing, etc.). If expenses rise, we have to adjust on both sides of the ledger.

Businesses operate in much the same way. When costs rise or revenues fall, firms must adapt. Revenue can be increased by raising prices (though this risks losing customers), expanding advertising, or adding new product features. Expenses can be reduced by layoffs, process efficiencies, cheaper materials, or supply chain adjustments.

So whether it’s a household or a business, the challenge is the same: balancing income and expenses.

Tariffs and Costs

When tariffs are imposed, the cost of imported materials or goods rises for businesses that rely on them. That triggers the same balancing act: how to restore the revenue/expense equation. Some companies may innovate and improve efficiency. Others may raise prices, cut costs, or both.

Trump’s recent tariff policies are a real-world test of this. In 2025, a 10% universal tariff was applied to most imported goods. On top of that, “reciprocal tariffs” were imposed on specific countries with large trade surpluses against the U.S., ranging as high as 50%. Importantly, though, some major sectors — including smartphones, semiconductors, steel, automobiles, and pharmaceuticals — were exempted.

Innovation vs. Reality

In theory, the best outcome would be that tariffs spur innovation, offsetting higher costs without layoffs or price hikes. Innovation has indeed been a major driver of U.S. productivity over the long run.

But history shows tariffs often raise consumer prices and increase costs for businesses rather than sparking efficiency. A company that imports coffee beans, for example, has no domestic substitute — U.S. soil and climate don’t support coffee production. Their only rational option is to raise prices. Similarly, goods like bananas, black pepper, and cinnamon are not produced in the U.S. at scale, so higher costs flow directly to consumers.

Other industries, like T-shirt manufacturing, could technically move back onshore, but U.S. wages are much higher than in low-cost countries. Even with tariffs, those jobs are not economically attractive to U.S. producers.

Strategic vs. Across-the-Board Tariffs

Strategic tariffs — targeted to support industries critical to national security or technological competitiveness (e.g., semiconductors, steel) — can be justified. They may raise prices in the short term but protect supply chains and strengthen the labor market in the long run. Subsidies can accomplish the same thing, though they increase government spending and potentially taxes.

Across-the-board tariffs, however, treat all industries equally regardless of strategic importance. A chip foundry and a T-shirt factory do not provide the same long-term value to the U.S. economy. Yet under universal tariffs, both face higher costs.

Final Thought

Tariffs can be useful tools, but they are double-edged. Trump’s mix of universal and punitive tariffs shows how they can raise costs broadly, even when certain industries are shielded. For households and businesses alike, the basic equation remains: higher expenses must be balanced with higher income or lower costs. In that balancing act, tariffs can sometimes encourage innovation and resilience — but more often, they simply raise prices.

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