Decoding Trump Trade Policy: A Q&A with Professor Robert Gulotty on the Political and Economic Dynamics of Tariffs

President Trump’s proposed tariff policies, according to Professor Gulotty, are likely to raise domestic prices and cause other nations, including Canada and Mexico, to establish their own tariffs (Image via Pexels)

Written by Noah L. ‘26

This Q&A, conducted by Noah L. ‘26, features insights from Professor Robert Gulotty of the University of Chicago, a leading expert in political economy and international trade. Adapted from an in-depth interview, the discussion explores the strategic, economic, and institutional implications of incoming President Donald Trump’s proposed tariff policies, offering a comprehensive analysis of their potential impact on global trade dynamics.

Q: What is the strategic purpose behind Trump's proposed tariffs?

A:  So, in the Trump administration, or in the campaign, we'd say, there are two perspectives being pushed by people within his orbit. 

One was from the more standard Republican business community that tariffs could be used as a bargaining chip to get policy concessions, mostly from us, allies, and trading partners, such as Canada and Mexico. 

The other side was Robert Lighthizer. His argument was that the US needed to change the trade balance that it has with the rest of the world, where the US is currently in a trade deficit with many of our trade partners, which means that the US imports more than exports. That's the trade deficit. What's happening there is the US is consuming rather than saving and other countries are saving rather than consuming. He (Lighthizer) thinks that we could use tariffs to fundamentally restructure the U.S. economy so it's less dependent on other countries and we don't run these deficits. It would be a re-industrialization of the United States if you will. So for that, the purpose of the tariff would not be negotiation, not to get concession, but rather to restructure the US economy. So far, Lighthizer did not get a job within the Trump administration. He didn't get any appointments despite being the trade guy from last time. 

So, the other side has won out that the tariffs will be used for the Trump side. These are the strategic bargaining tariffs. They are most effective against countries tightly dependent on the US market, particularly countries like Canada and Mexico. So, Trump is using the threat of tariffs to try to get them to make policy concessions and personal concessions to himself. 

Q: How easily can these tariffs be implemented?

A: He doesn't need to do it in the context of a negotiation, and he doesn't need legislation because Congress has authorized the president to temporarily raise massive amounts of tariffs on basically the flimsiest of excuses. They can just say that there's a national security concern and raise tariffs dramatically. So, the President is authorized because Congress has allocated that authority over various trade acts for massive unilateral action in this area. 

Q: How will other countries respond?

A: The natural thing to do would be to retaliate, so raise their own tariffs and adopt their own similar systems to enable them to respond quickly. So, there's no reason to think that either Canada or Mexico would just sit there and accept these tariffs. They would then raise their own tariffs against American products. 

Q: What's the impact on prices and inflation?

A:  Prices will go up. That's the whole point of a tariff: to increase domestic prices relative to before. If you put a tax on something, it should make it more expensive. It will not necessarily affect inflation. It can, in fact, have a deflationary effect because it depends on how the economy is doing overall. The tariffs could be so disruptive as to create a recession, which would have a deflationary effect. The tariffs could also have consequences that would raise prices, but because they would only raise the prices of imported goods, and imported goods are only a subset of all the goods, it's not going to be across-the-board inflation. It can be that there are disruptions that do have an inflationary effect, but that would be temporary. 

The bigger question is whether the disruption of the supply chains would create long-term employment downturns in the United States. One of the reasons the US produces cars, but not computers, is that we have a massive workforce in Mexico and Canada that contributes to the production of cars. Without those trade ties, I doubt we could sustain an automotive sector. This, however, is just one example.

If prices on everyday goods rise broadly, it could create inflationary pressure. However, as prices increase due to tariffs, consumer spending might decrease. This doesn't necessarily mean there will be higher demand for products, so the overall price structure might not be immediately impacted in a way most Americans would notice. Certain goods, though, would become more expensive—for instance, building a house could become more costly due to higher tariffs on Canadian lumber.

For a widespread effect on the basket of goods people consume, consumers would need to lack the ability to switch between different varieties of products. Generally, when it comes to imports, domestic substitutes are available. In some cases, the broader economic impact might lead to lower prices overall, as job losses could reduce consumer purchasing power.

Q: What other effects may these tariffs have?

The overall effect of this is to create uncertainty, which acts as a barrier to trade in its own right. Engaging in international trade requires significant investment—you need to build factories, produce goods, ship them overseas, and often wait months to get paid. This process demands confidence that you'll be compensated at the end, and heightened uncertainty makes the entire venture more challenging.

Even if the specific tariff rates, like the ones on China, aren't finalized—whether they’re 10% or 60%—the uncertainty itself discourages trading firms from participating, leading to a reduction in trade activity. In fact, the mere threat of tariffs can create a significant barrier to international trade, even if they’re never fully implemented. The downside to this approach is that while the intent might be to generate revenue from tariffs, no revenue will materialize if uncertainty discourages trade to the point where businesses decide not to engage at all.

Q: Who actually pays for these tariffs?

A: Ultimately, everyone can end up paying for tariffs, and the costs can be higher than you'd expect. Both consumers and exporters bear the burden—it’s not an either-or situation. The pricing dynamic often impacts consumers the most, as tariffs tend to increase prices in ways that amplify their effect rather than just distributing the cost evenly.

Let me give you an example. In 2018, the Trump administration imposed a high tariff—about 170%—on washing machines, many of which are produced by companies like Samsung in South Korea and imported into the United States. The result? Prices for washing machines went up significantly, and what’s interesting is that dryer prices went up too, even though dryers weren’t subject to the tariff. Since washers and dryers are often bought together, manufacturers and retailers took advantage of the situation and raised dryer prices alongside washers.

Consumers often bore the brunt of these increases by paying more for both appliances. Exporters were affected, too, because they made less money, sold fewer products, and faced reduced profit margins. Essentially, the tariff acted as a transfer of money: from U.S. consumers to domestic producers, and from foreign exporters to American manufacturers.

Q: How difficult would it be to remove these tariffs?

A: He could do it immediately. Really, he could do it immediately. It's order the Commerce Secretary to remove them. And Congress could do it immediately as well... All it is, is like a set of orders given to US customs to charge a tariff, charge a tax.

Q: What's the likely long-term outcome?

A: To be fair to those who believe that would happen. They're not gonna even try. They're gonna use these temporary bargaining tariffs which don't have those effects. So in the long term, there won't be this big, large effect that most that a lot of these articles are now reporting on. I just don't think that the Trump administration has shown interest in doing the sort of industrial chain transformation that they're described that they campaigned on.

Q: How will this affect ports and supply chains?

A: It will create a problem that there will be a bunch of people who want to wait for the tariffs to pass... what's gonna happen? There is gonna be a bunch of stuff in China stuck in their port waiting to go that, I think will be very disruptive, actually, because they don't have the storage there... I think it'll have shifted consequences but not, not because people are way they get into the United States.