Japan eats a lot of rice. And it imposes tariffs on foreign rice to protect domestic producers — sometimes as high as 700 hundred percent. The result has been a disaster for Japan’s rice industry: the opposite of what tariffs are supposed to achieve.
In the early 1990s, Japan was forced to liberalize its rice market and did so reluctantly. But tariffs and subsidies designed to protect the domestic industry and keep prices high have instead corroded it by weakening incentives to be productive and innovative, among other problems. Because tariffs shield domestic producers and subsidies prop up prices while suppressing domestic output, Japan’s rice industry is inefficient and under-mechanized compared to Korea’s, which wasn’t as heavily protected and now thrives by comparison.
Consider now the political situation in the United States. Since January, the US and international markets have been subjected to ongoing tariff threats, many of which are later walked back. Admittedly, there are a few cases where tariffs might be justifiable, such as protecting nascent industries or those vital for national security. Trump and the MAGA crowd, however, generally appeal to four main justifications for tariffs:
To boost American manufacturing and jobs.
To address trade imbalances and promote trade reciprocity.
To protect national security.
To generate revenue and reduce taxes.
The difficulty — especially with rationales 1), 2), and 4) — is that tariffs tend to weaken the very industries they are supposed to protect. That is because they undercut the very forces that keep industries strong and competitive. Markets are antifragile systems: they require competitive stress and pressure to function properly, and they languish without it. A helpful analogy is the human immune system. Without regular stressors from infections and pathogens, it fails to flourish and develop. It is worth remembering that immune systems, like any system, can be overwhelmed. And they can also be under-stimulated. The immune system is trained and fine-tuned by challenge, and without that challenge, it atrophies.
The same lesson applies to industries insulated by tariffs. Protection from international competition weakens the incentive to innovate, discourages outside investment, and rewards rent-seeking and regulatory capture over genuine progress. Before reviewing the broader mechanisms, it’s worth considering a few concrete examples where tariffs backfired.
In the early 2000s, US steel received tariff protections. The results were dismal: more jobs were lost than saved, and US steel companies used the tariff shield to consolidate rather than to expand or innovate. Meanwhile, global competitors kept innovating and capturing market share at America’s expense.
With few exceptions, tariffs should be expected to weaken protected industries over time. The mechanisms are well understood. First, tariffs artificially raise prices, which dulls the incentive to innovate — to do more with less or to develop better products and services. Over time, these industries fall behind their international counterparts, unable to keep pace with firms exposed to real competition. The gap grows until the protected industry becomes fragile and inefficient.
Second, tariffs reduce incentives for long-term investment. Investors are less likely to back industries dependent on political protection rather than genuine performance. That means less capital for innovation, productivity gains, and market resilience.
Finally, protected industries often lobby to preserve those protections. The longer tariffs last, the stronger the signal that government will force consumers to pay higher prices and bail out weak firms through subsidies. Over time, these industries grow more dependent on political favors and less capable of competing on merit.
In the end, tariffs may sound patriotic, but they almost always dull the very industries they’re supposed to protect. By stifling competition, undercutting innovation, and rewarding political maneuvering over market success, tariffs leave industries brittle and taxpayers holding the bag. Competitive pressure is essential for efficiency and innovation. With a few rare exceptions, tariffs simply don’t deliver and mostly do harm.
AloJapan.com