How Trump’s ‘Liberation Day’ tariffs could kill American innovation

On Wednesday, President Donlad J. Trump announced a sweeping new round of tariffs on goods coming into the United States. Standing in the Rose Garden, he declared the moment “liberation day,” though it was hardly the first time the government has tried to protect domestic manufacturers from foreign competition. The practice dates to America’s founding.  

After states ratified the Constitution and seated the first Congress, James Madison sponsored, and his colleagues passed, the country’s first major piece of legislation: the Tariff Act of 1789. President George Washington signed the bill into law, setting off centuries of spiraling consequences for American competition and innovation that experts say should serve as a cautionary tale for a litany of modern industries, including clean energy technology. 

The Tariff Act levied, among other fees, a duty of 50 cents per ton on goods imported by foreign ships. The goal was to raise money and bolster American shipbuilders. Some iteration of this effort has existed virtually ever since; most recently as the 1920 Jones Act, which restricts domestic shipping to vessels that are built and registered in the United States, owned by American firms, and staffed by U.S. citizens.

In an era of wooden ships and limited globalization, these protections had little effect. American timber and American ships were naturally the best route for most companies. Before the revolution, even the British built one-third of their ships here. But by the late 1800s, technology was changing. Steamships and metal hulls were rapidly becoming the norm, yet U.S. shipbuilders remained insulated from competition. In 1900, the U.S. produced about 20 percent of the world’s ships by tonnage. By 1914, U.S.-flagged merchant vessels carried just 10 percent of ocean trade. In the 1970s, U.S. shipyards were building about 5 percent of the world’s tonnage. Today it’s around two-tenths of a percent — less than 5 ships per year. 

“U.S. shipbuilders haven’t been competitive since just after the Civil War,” said Colin Grabow, associate director of the Herbert A. Stiefel Center for Trade Policy Studies at the libertarian Cato Institute. Grabow is an expert on the Jones Act and says American companies are still feeling its impacts. 

The U.S. only recently, for example, gained access — via a manufacturing license — to a Finnish dredging ship that the rest of the world has been able to use for 30 years. Offshore wind developers have pointed to the Jones Act as a major impediment to transporting turbines. The price of a U.S.-built ship is now as much as five times higher than those built abroad — up from a difference of about 20 percent in 1920. Grabow says Trump’s tariff push is set to create the same sort of protectionist woes that the shipbuilding industry has faced, on a much larger scale. 

“We’re going to keep your foreign competitors out. What’s the incentive to innovate in that kind of environment?” he said. “If you look around the world, countries that are more closed and more protectionist don’t tend to be cradles of innovation.” 

Clean energy technologies could be especially hard hit because so many key components — from batteries to solar cells — come predominantly from overseas. The tariffs Trump announced Wednesday ranging from 10 percent on the United Kingdom to 49 percent on Cambodia. China will face duties of 34 percent, while the European Union’s stand at 20 percent. These are in addition to other recent hikes targeting aluminum, steel, and auto manufacturers. 

“Taxpayers have been ripped off for more than 50 years,” Trump said in remarks at the White House. “But it is not going to happen anymore.”

Tariffs are now approaching levels not seen since the Smoot-Hawley Tariff Act of 1930. While they could raise hundreds of billions of dollars in revenue, those added costs are often passed on to consumers and could result in higher prices for cars, heat pumps, or utilities.

“People are focused on the immediate price impacts,” said Catherine Wolfram, an economist focused on energy at the MIT Sloan School of Management. But the longer the tariffs are in place, the greater the chance that America’s clean energy industry falls further behind the rest of the world, especially China. 

Electric vehicles are one area that this could play out. If foreign competitors are tariffed out of the U.S. market, domestic automakers may not feel the need to produce cars with longer ranges, more efficient technologies, or other cutting-edge features. 

“The same logic applies whether you’re talking about solar cells or any other input into the clean tech space,” said Wolfram. “One of our core strengths is that we’re innovative [and] you’re protecting American companies from pressure to innovate.”

The reverse logic is also true, says Steven Knell, president of Energy Intelligence, an industry analysis firm. Trump’s tariffs will not only ease the impetus for domestic inventiveness but also make it more expensive for American companies to adopt innovations developed abroad. “Some of what has allowed the clean tech industry to be successful over the course of the last 20 years has been globalized market opportunities,” he said. “That’s certainly a potential risk of the way in which the administration is suggesting it’s going to pursue things.”

Arguments for protectionism often fall into a few buckets, said Grabow, including national security and the need to boost fledgling industries, but those policies have tended to remain in place far beyond their stated need. “That’s one of the dangers with protectionism, is once you put that in place, it’s hard to put the toothpaste back in the tube,” he said. “Historically, you find very few examples of where the government gets rid of protectionism.”

Grabow points to decades of government support for the sugar industry as another example of a sticky situation. Using a mix of quotas, tariffs and price supports, the Government Accountability Office found, in 2023 that federal policies aimed at protecting sugar farmers are raising prices and, on the whole, costing Americans $1 billion each year. The tariffs that Trump instituted in his first term have similarly been shown to be a net drag on the American economy.

“They’ve done the studies, they’ve done the math on it and we know it’s been an economic loser. But [President Biden] didn’t get rid of them,” said Grabow, citing the historical power 

Interest groups and lobbyists have shown in keeping protections in place. With Trump’s latest moves, he says, “take that dynamic and apply it all across the board.”

For Wolfram, Trump’s tariffs are only part of the problem when it comes to clean energy. Their impacts, she said, will be exacerbated by the fact that his administration is also trying to dismantle climate policy — especially the Inflation Reduction Act — and is targeting federal scientific research, and scientists, as part of its sweeping government cuts.  

“It’s a triple whammy,” she said, adding that there could be even more to come. “Four years is a long time.”

This story was originally published by Grist with the headline How Trump’s ‘Liberation Day’ tariffs could kill American innovation on Apr 2, 2025.