If there is any consistency to President Donald Trump’s political and economic thought, it is a strong and unwavering commitment to a protectionist view of the world. You can find dozens of clips of Trump on YouTube from as far back as the 1980s in which he complains about how trade liberalisation is allowing Japanese companies to ‘rip off’ the United States.

If you substitute the word ‘Japan’ with ‘China’, 1980s Trump uses almost exactly the same words and phraseology as 2020s Trump. When it comes to tariffs, Trump is very much a true believer.

This means that no amount of empirical evidence – which is, frankly, overwhelming – concerning the ways in which tariffs corrode the competitiveness of countries, raise prices for consumers and companies, or incentivise cronyism on the part of business and politicians, is likely to shift Trump’s thoughts on the topic. Protectionism is simply a very different way of understanding economic reality compared to anyone who has read Adam Smith’s critique of mercantilism in Book IV of The Wealth of Nations.

That deep Trumpian commitment to protectionism has major implications for the conduct of US trade policy over the next four years. It means, for example, that the likelihood of Trump abandoning protectionist positions is extremely low, no matter how much higher tariffs and possible all-out trade wars negatively affect Americans and America’s relationship with the rest of the world.

There is, however, one development that may give some people working in the Trump administration pause with regard to the pursuit of protectionist policies. This concerns the ways in which such policies are likely to cancel out substantially the positive effects of other parts of the president’s domestic economic agenda, especially those policies that reflect more free market thinking.

Let’s start with taxes. One of the successes of the first Trump administration concerned its ‘Tax Cuts and Jobs Act’ (TCJA) of 2017. It substantially reduced corporate and personal tax rates and increased the child tax credit (a big plus for American families). That put more dollars in people’s pockets, thereby freeing up capital for spending and investment, which helped make the pre-Covid Trump 1.0 economy one of the administration’s success stories. Importantly, the TCJA also broadened the tax base for both individuals and companies.

At a minimum, the Trump administration will be looking to make the TCJA tax-rates permanent. US Treasury Secretary Scott Bessent, I suspect, may want to lock in even lower income and corporate tax rates.

Herein lies the problem. The ‘Liberation Day’ introduction of a universal 10 per cent tariff for all goods entering the United States and the bewildering number of additional tariffs that will be paid by countries ranging from US rivals such as China to US allies like Japan will translate into higher consumer prices. Businesses importing foreign goods into the United States will offset their costs by raising prices on the products that they sell to American consumers. That will soak up much of the extra cash that the likely Trump tax-cuts to consumers and businesses would have otherwise delivered, thereby leaving less capital available for spending and investment.

Another way in which playing the tariff game will undermine Trump’s domestic economic agenda concerns regulation. While the first Trump administration did not substantially reduce regulation, it did slow down the growth of regulation. There is every sign that, second-time around, Trump wants to pursue a more aggressive deregulatory agenda. We see this in efforts by Elon Musk and DOGE to cut the administrative state down to size.

The point of the exercise is to free up economic activity from what free-market conservatives typically regard as the stifling burden of Big Government. Again, however, the use of tariffs will tend to contradict any progress made on the deregulatory front.

In the first place, tariffs generate detailed classification systems for all goods entering the United States so that applicable tariff rates can be established. Regulatory agencies, including US Customs, have to determine and enforce these rates. Likewise, companies have to document the origins, nature, and price of imported goods. That considerably magnifies their administrative load.

Second, complicated tariff levels necessitate even more government supervision of all imports into the country to ensure that accurate assessment of duties is carried out. This necessitates inspections, audits, and penalties. All these require employing administrators. The more complicated the tariffs, the more administrators you need.

Moreover, an expansive tariff regime of the type we find in those of Liberation Day will encourage business, if not entire economic sectors, to lobby Congress and the White House aggressively for rules (i.e., regulations) that create exemptions from tariffs for them and/or impose a higher tariff burden on some of their international and domestic competitors. The effect is to integrate government officials into the nitty-gritty of companies’ economic decision-making. That encourages legislators and bureaucrats to start acting as the arbiters of economic choices. That is hardly consistent with a deregulatory agenda.

Finally, there is the question of growth. The Trump administration has constantly underscored its desire to grow the US economy faster and on a greater scale,  but tariffs will significantly degrade America’s capacity to do so. Economic modelling of the Liberation Day tariffs by the Budget Lab at Yale University, for example, suggests that, in the long run, they will diminish US real GDP growth by -0.4 percent annually. Just under half a percent may not sound like a great deal,  but when annual growth is, say, two per cent annually, it means growth is about 20 per cent less than it would be in a Liberation Day free world. As the years pass, that adds up to a formidable amount of lost economic growth, which compounds annually.

Close analysis of any government’s economic policies usually reveals some contradictions. However, the Trump administration’s determination to use tariffs to achieve objectives as different as restructuring the global economy and stopping fentanyl from entering the United States amounts to creating a systematic obstacle to the realisation of many other economic goals that it claims to be pursuing. Eventually, the paradox will have to be resolved. The resolution is unlikely to be pretty.