Market Update: We break down the business implications, market impact, and expert insights related to Market Update: Pros and cons of tariffs – Full Analysis.
Donald Trump has again used the threat of tariffs to further his political objectives, this time in his bid to take control of Greenland.
The US president sparked fresh diplomatic turmoil by announcing plans to impose an additional 10% tariff on eight European countries that have mobilised to try to block his ambitions in the Arctic. These are due to kick in on 1 February before rising to 25% from June.
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Since returning to the White House a year ago, the US president has introduced a whole host of tariffs for all kinds of reasons – with decidedly mixed results. Here are the pros and cons of tariffs.
Pro: increases government revenue
Tariffs are essentially another form of tax and as such generate revenue for governments. A quick look at the data behind this claim “tells a compelling story”, said Sky News’ economics editor Ed Conway. Indeed, “for nearly all of the 19th century, tariffs imposed on goods imported into America provided more than half the government’s revenues”.
Data from the US Treasury Department shows the federal government collected $264 billion from increased tariff revenue in 2025, compared to $79 billion in 2024, before Trump’s latest trade war began. The US-based Tax Foundation calculated that, at their current level and “accounting for negative economic effects”, the revenue raised by tariffs will be $1.7 trillion over the next decade.
It means that, as a source of revenue relative to the size of today’s global economy, income from tariffs is “modest”, according to the Council on Foreign Relations think tank.
Con: impacts on consumers and economy
One of the “most immediate impacts of tariffs is a rise in consumer prices”, said EV Magazine.
A report out this week by the Kiel Institute for the World Economy concluded that American consumers are paying for “nearly all” of Trump’s tariffs, and that the $200 billion or so surge in customs revenue last year “represents $200 billion extracted from American businesses and households”.
Significant short-term price hikes on imported goods, ranging from electronics and cars to everyday groceries, can in turn “contribute to inflationary pressure”, said EV Magazine, forcing central banks to “raise interest rates, potentially slowing economic growth and increasing borrowing costs for businesses and consumers”.
The problem, said Sky News’ Conway, is that “there is only so high one can lift these fees before they begin to stifle activity, making goods so expensive to import that domestic consumers face economic damage”.
Because tariffs are “in essence a tax on consumers”, Trump’s levies offer the “sort of liberation that most corporate bosses and investors would happily do without”, said The Economist.
Pro: protects domestic businesses and jobs
“In most cases” tariffs are “intended to protect local industries by making imports more expensive and driving consumers to domestic producers”, said the Council on Foreign Relations. Supporters argue that tariffs incentivise companies to manufacture goods within their own country, reviving industry while bolstering supply chain resilience.
“Long-standing concern” about the loss of manufacturing jobs to countries with lower labour costs has been a main driver for the anti-globalisation movement in the developed world, said the BBC. Trump has told American workers that they no longer need to be “worried” about losing their jobs to “foreign nations”. Instead, he said, “foreign nations will be worried about losing their jobs to America”.
Con: lobbying and corruption
Tariffs often lead to “cascading protectionism and create a fertile ground for corruption”, said the free-market think tank the Cato Institute. Trump’s 2018–19 tariffs on China led to “a complex process of exclusion requests” and “lobbying”.
In the absence of appropriate oversight, tariff exemptions “become political currency – traded between firms and officials in what amounts to a pay-to-play arrangement”, said Forbes. Rather than economic factors, decisions are determined by “lobbyists, campaign contributions, and political connections”.
Pro: protecting national interests
Trump “has long argued that the US is being cheated by its trading partners and that tariffs are the best remedy”, said The Guardian.
Politically, tariffs can be used as an “extension of foreign policy”, said Investopedia. Imposing them on a trading partner’s significant exports “may be used to exert economic leverage”.
The use of tariffs as a “negotiating tool” with other countries “might well be their main function in the hands of Mr Trump”, said Conway. In his first year back in office, he has used the threat of levies on Mexican and Canadian goods to try to force both governments to stop the flow of illegal immigrants and fentanyl into the US. He has tried to force Russia’s hand in the Ukraine war by targeting India and China and now has threatened European allies with extra tariffs unless they yield to his demands to take over Greenland.
Con: retaliatory tariffs
Retaliatory – or tit for tat – tariffs are among the “multifaceted harms of protectionist measures”, said the Cato Institute.
A 2024 study by economists from international universities and the World Bank concluded that retaliatory levies imposed by China and other nations on US goods during Trump’s first term had “negative employment impacts”, especially for farmers.
But “if Trump’s trade war fizzled as policy” it “succeeded as politics”, said NBC News. Support for Trump and Republican congressional candidates rose “in areas most exposed to the import tariffs, including the industrial Midwest and manufacturing-heavy Southern states like North Carolina and Tennessee”.
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