Protectionist trade policies, such as those proposed by Donald Trump, may inadvertently hurt U.S. manufacturing companies by increasing input costs, leading to lower investment, according to a study by the Frankfurt School of Finance and Management.
Since tariffs are central to Trump’s economic vision, manufacturers could face higher costs on imported goods if he is re-elected, a move researchers suggest could discourage investment sector-wide. The study, conducted by associate professors Thorsten Martin and Clemens Otto, found that a 10% reduction in tariffs on primary manufacturing inputs could lead to a 4-6% increase in investments by US companies that use these goods in production.
The research focused on the effects of tariff changes on key raw materials and inputs, including steel and aluminium, which are essential in many manufacturing sectors. By analyzing historical import data and investment patterns, the study revealed that lower input costs stimulate investment, boosting profitability, productivity and employment throughout the manufacturing industry.
“Protectionist policies such as tariffs can appear useful in protecting domestic industries from foreign competition in the short term, but they often backfire by raising the costs of essential production inputs,” Professor Martin explained. High tariffs on raw materials and standardized products ultimately hurt U.S. manufacturing by reducing competitiveness, with downstream industries particularly vulnerable.
The results suggest that if the United States imposes tariffs on production materials at an early stage, as seen with Trump’s steel and aluminum tariffs, manufacturing investment and sector-level growth may decline, negatively impacting the broader US economy.