U.S. Trade Representative Jamieson Greer recently argued that economists overlook a key benefit of tariffs: foreign companies may move production to the United States to avoid them. But according to two Georgetown University scholars, that argument confuses a mechanism with a result. Showing that tariffs change corporate behavior is not the same as proving they make Americans better off.
When a firm faces a new tariff, it has several options. It can absorb the cost, pass it on to consumers, redirect exports elsewhere, or relocate production to the protected market—a practice economists call tariff-jumping. Greer highlights this last option as a win. But relocation, by itself, is not evidence of success, write Marc L. Busch and Rodney D. Ludema in a new analysis.
Consider a foreign automaker that builds an assembly plant in the U.S. to avoid tariffs. That investment may create jobs and boost domestic production. Politicians can cut a ribbon and claim victory. Yet none of this tells us whether the investment represents a net economic gain. The firm may simply duplicate existing facilities, produce at higher cost, pass those costs to consumers, or divert resources from more productive uses. Tariff-jumping does not guarantee industrial revitalization; it may just be the least costly response to a politically created obstacle.
Greer is particularly frustrated with International Monetary Fund models that find little effect of tariffs on trade balances. But those findings rest on a simple accounting identity: a country's trade balance reflects the relationship between national saving and national investment. Unless tariffs change those fundamentals, they may rearrange trade without eliminating deficits. That's not ideology—it's arithmetic.
During President Trump's first term, tariffs on China led some production to shift, but most Chinese producers stayed put, paid the tariff, and passed the cost to U.S. consumers. The production that did leave China moved not to the U.S. but to Vietnam, Mexico, and other countries. Supply chains adjusted, trade flows were rerouted, and the overall U.S. trade deficit remained stubbornly large. This is exactly what standard economics would predict, the professors note.
Greer's broader argument also misses that economists already account for resilience, supply chains, national security, and adjustment costs. The profession has spent the last two decades studying these questions. What's missing is evidence that tariffs reliably solve the problems Greer identifies. Tariff-jumping demonstrates that tariffs influence corporate decisions, but it does not demonstrate that they reduce trade deficits, increase national income, improve productivity, or make the economy more competitive.
The real question, Busch and Ludema conclude, is whether the benefits of tariffs outweigh the costs. Until the administration can answer that, pointing to tariff-jumping is less an argument for tariffs than an explanation of how firms try to cope with them.
