Imagine a shopkeeper’s son broke a window. Common sense would tell most observers that this careless mistake was detrimental to the shopkeeper. However, the shopkeeper must hire a glazier to come fix his window, thereby providing new work and jobs. In an effort to improve the economic prosperity of his community, the shopkeeper continues breaking windows and causing damage to his property to hire more contractors.
Why is this silly? While the shopkeeper is spending his capital on handymen, he is spending less capital on other businesses, thereby putting other people out of work.
This classic scenario — known as the "Broken Window Fallacy," made famous by French economist Frédéric Bastiat — mocks the economic logic (or lack thereof) behind President Donald Trump's sweeping tariff policies. The theory behind Trump’s unprecedented tariffs across the board on all industries from certain countries (even going as far as 145% tariffs on Chinese goods) is that they will increase manufacturing job numbers.
Trump has also mentioned that tariffs could supplement income tax to make other countries help balance the deficit in the U.S. budget. Because importers — not exporters — pay tariffs, the theoretical construct of using tariffs to pay off debt is not taken seriously by any economist and should be viewed as nothing more than a Trump quip. However, tariffs have long been a tool used by administrations to protect domestic manufacturing, and there is certainly an argument that they benefit this sector of the American economy.
As a whole, however, tariffs ultimately hurt American consumers. In a vacuum, the shopkeeper's solution sounds neat. But, like the shopkeeper who breaks his own windows to give glaziers work, this view ignores the broader, more destructive consequences.
First, tariffs are not paid by foreign governments or exporters. They are taxes collected by the U.S. government from American importers — the companies bringing goods into the country. These businesses, facing higher costs, either pass them along to consumers through higher prices or absorb them and cut costs elsewhere — often by reducing wages, freezing hiring or even laying off workers. Ultimately, it's American families and American businesses that bear the cost. But a tariff proponent, like treasury secretary Scott Bessent, would say that in the long run, the increase in American employment and self-sufficiency would lead to a more efficient economy.
While some domestic manufacturers may benefit in the short term, the economy as a whole suffers long-term. Consumers pay more for a wide range of products — from basic household goods to essential components for American industries like automotive, construction and technology. Higher costs ripple through supply chains, increasing prices at every stage and reducing purchasing power. That shopkeeper, instead of paying his employees higher wages and buying other goods, such as supplies for his shop or groceries for his family, must spend his capital on avoidable repairs. From a macroeconomic perspective, other businesses will receive less revenue as their consumers are forced to pay more for American-made goods. Goldman Sachs estimates tariffs could lose 5 jobs for every 1 manufacturing job gained.
Trump’s suggestion to use tariffs to replace income tax is an economic fantasy. No matter how aggressively tariffs are imposed, it is American money, not Chinese or Mexican or European money, that flows into the U.S. Treasury from these tariffs. They do not magically transfer the burden of American spending onto foreign nations.
Trump has belabored his point that America is being “cheated” by other countries: In essence, tariffs are meant to be a middle finger to those countries. The claim by the White House is that the United States’ poor foreign policy and trade expertise has led to ballooning trade deficits, allowing other countries to exploit our prosperity. While you could certainly find examples of some countries charging the U.S. high tariffs, the argument about the trade deficit is perhaps one of the least informed in the Republican party’s agenda. The U.S. dollar has a special status as the world reserve currency, meaning other countries hold the dollar in their bank. It is the most commonly used money for international trade, investments and central bank reserves. Countries prefer to use and hold dollars because they are stable, trusted and widely accepted. This gives the U.S. economic advantages, like lower interest rates and greater global influence. Since the United States is obviously the only country that prints the U.S. dollar, how would other countries acquire it in their bank? The answer is by selling products to the United States in exchange for U.S. dollars. By definition, the country whose currency is a reserve will have a trade deficit with all countries that acknowledge them as the reserve. Trade deficits are not inherently exploitative: I run a trade deficit with every restaurant I’ve ever been to. They don’t buy a thing from me: are they exploiting me? Obviously not. We buy things that we receive. The Trump administration’s failure to understand textbook economics blows my mind.
Tariffs can be useful tools: as temporary measures to protect fledgling industries, to retaliate against unfair trade practices or to safeguard national security interests. But blanket, indiscriminate tariffs (as opposed to the textbook industry-targeted method of economic relief) — particularly of the massive scale Trump proposes — are a blunt instrument that does more harm than good. The experience of the 1930 Smoot-Hawley Tariff Act, which triggered retaliatory tariffs and exacerbated the Great Depression, stands as a stark warning against high tariffs.
More recently, Trump's first term showed that his steel and aluminum tariffs led to a brief increase in domestic steel jobs, but at a steep cost: Economists estimate that for every steel job saved, American consumers and businesses paid hundreds of thousands of dollars in higher costs.
A healthy economy is not built by smashing windows and hiring more glaziers. Nor is it built by taxing American consumers under the guise of punishing foreign competitors. True prosperity comes from growth, innovation and the freedom for individuals and businesses to allocate their resources efficiently — not from artificial distortions that raise prices and stifle choice.
16 Nobel winning economists disavowed Trump’s economic plan for a reason. The shopkeeper learned the hard way that prosperity isn't created through destruction. America would be wise to avoid learning the same lesson all over again.
