Tariffs Are Eroding Economic Freedom. The Cost of Backsliding.

The U.S. overall average effective tariff rate is currently 18.6%, the highest since 1933.  (Spencer Platt/Getty Images)

About the authors: Robert Lawson is Fullinwider Chair in Economic Freedom and director of the Bridwell Institute for Economic Freedom at Southern Methodist University. Matthew Mitchell is a senior fellow with the Center for Human Freedom at the Fraser Institute and a senior affiliated scholar with the Mercatus Center at George Mason University.

President Donald Trump’s refrain on trade is that the U.S. is being “ripped off” by the rest of the world. This narrative resonates with millions of Americans. But almost all of the countries targeted in Trump’s tariff war are actually more open to trade than the U.S. His trade policies are knocking the U.S. behind its peers in terms of trade and economic freedom—and not without consequence.

At the Fraser Institute, we recently assessed America’s economic freedom based on 45 indicators of government policy, such as taxes, spending, and regulations. Our premise was that people are more economically free when they are allowed to make more of their own economic choices without heavy interference from taxes and regulations imposed by the government. These taxes, by definition, include tariffs.

We concluded that Trump’s trade war will drop U.S. tariff freedom from 62nd to 161st and trade freedom from 56th to 76th place. These changes dropped the U.S. from fifth to tenth in overall economic freedom.

A large body of research associates more economic freedom in general and trade freedom in particular with better outcomes like higher income, faster growth, less poverty, and greater life satisfaction. The U.S. has long been near the top of the list, which helps explain an extraordinarily high standard of living: U.S. median income is nearly nine times the global average and its poverty rate is about one-fortieth the global rate.

The U.S. economy has outperformed that of every country Trump claims rip Americans off. And yet his tariffs undermine the economic freedom upon which this prosperity was built.

The U.S. helped invent the low-tariff world by negotiating multilateral and bilateral free trade agreements after World War II. Those that embraced free trade have prospered. Among the 15 countries with the lowest tariff rates in the world, gross domestic product per person is $43,500 a year. In the 15 countries with the highest tariff rates, it is only $9,700.

When Trump’s first term began, the average U.S. tariff rate was still low—about 1.5%. But rigid controls on the movement of people and capital imposed during the Obama and first Trump administrations had made it increasingly difficult for Americans to do business with the rest of the world. By 2023, the U.S. ranked 56th out of 165 countries for its freedom to trade, nearly tied with Mexico. Canada and all 27 EU countries were ranked higher. Among Trump’s targets, only China lagged significantly behind the U.S. on freedom to trade.

His current administration’s trade war has sent the average U.S. tariff rates gyrating up and down. At one point in April, it was 28%—the second highest in the world and just above Sudan, where the average income is less than $600 a year, and Djibouti, where it is about $3,300.

The long-run costs of this backsliding may be steep. Research shows that once countries limit what their own citizens and firms may buy from abroad, they are more likely to limit other economic freedoms. We are already seeing some indication of this.

Since launching the trade war, the president has relentlessly pushed the Federal Reserve to cut interest rates. If the Fed cuts rates too quickly and too soon, inflation can easily return, undermining the U.S. commitment to sound money and, with it, its people’s economic freedom.

Or consider the conditions for the sale of U.S. Steel to Japan’s Nippon Steel. Nippon was forced to grant the administration extraordinary oversight, permitting the president to personally oversee company decisions regarding board membership, factory locations, capital investment, employment, worker pay, and even naming rights. If this sort of control were expanded to other companies, it would almost certainly and severely depress U.S. regulatory freedom.

Americans represent just 4.2% of the world’s population and produce more than 26% of global GDP. This prosperity was built on a foundation of economic freedom. Thanks to Trump’s trade war, that freedom is measurably eroding.

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