Research suggests that Trump’s tariffs could hurt investment in US manufacturing
Protectionist trade policies, such as those proposed by Donald Trump, could inadvertently hurt US manufacturing firms by raising input costs, leading to reduced investment, according to research from the Frankfurt School of Finance & Management.
With tariffs central to Trump’s economic vision, manufacturers could face higher costs on imports if he is re-elected, a move researchers suggest could discourage investment across the sector. The study, led by Professors Thorsten Martin and Clemens Otto, found that a 10% reduction in tariffs on upstream products would lead to a 4-6% increase in investment by US firms that use these goods in production.
The study focuses on the effects of tariff changes on key raw materials and inputs, including steel and aluminum, which are important in many manufacturing sectors. By analyzing historical data on import and investment patterns, the study revealed that reduced input costs stimulate investment, increasing profits, productivity, and employment throughout the manufacturing industry.
“Protective policies such as tariffs can appear beneficial in protecting domestic industries from foreign competition in the short term, but often backfire by increasing the cost of key production inputs,” explains Professor Martin. High prices for raw materials and quality products ultimately hurt US manufacturing by reducing competition, with downstream industries most vulnerable.
The findings suggest that if the US imposes tariffs on primary manufacturing materials, as seen in Trump’s steel and aluminum tariffs, investment in manufacturing and overall sector growth could decline, negatively impacting the broader US economy.
