The National Security Costs of Trump’s Tariffs

This piece is part of a joint analysis by CFR trade fellows that assesses the Trump administration's tariff policy since it announced a trade "Liberation Day" on April 2. The full assessment will publish July 7.

President Donald Trump has been wielding tariffs to confront a range of national security threats: fentanyl, illegal immigration, the trade deficit, steel, aluminum and other imports deemed threatening. But looking at the national security ledger, the costs of those tariffs are starting to become clearer than the benefits, especially for the U.S. defense industry, critical infrastructure, and relations with partners and allies.

National defense requirements are perhaps the most direct link between economics and national security. Indeed, some first estimates of national income were developed in Europe to compare the ability of countries to raise and support armies. That basic idea remains the same: the United States needs people, materials, and production capacity to field military forces.

Tariffs, however, make it more expensive to meet national defense requirements. The full cost will depend on several factors, including whether and to what extent U.S. trading partners retaliate. But defense companies of all sizes are beginning to report higher costs, from the defense conglomerate RTX to a ball bearing manufacturer in New Hampshire. Higher costs could be justified if the United States were lacking access or capacity in important areas. Evidence of deficiencies, however, appears to be thin in several Section 232 cases with others still pending.

Tariffs on steel and aluminum are particularly confounding. In 2018, the Department of Defense concluded that domestic production was meeting the U.S. military’s needs, which accounted for approximately 3 percent of domestic production. Since then, steel production has declined slightly, but not dramatically, and aluminum production has remained relatively constant. The threat is not clear, especially because Canada is the United States’ leading source of imported steel and aluminum.  

Tariffs make it more difficult to meet U.S. defense requirements in many of the same ways that they impact American households. Higher costs are passed to the customer, which in this case is the U.S. government. As a result, the Department of Defense simply cannot buy as much with its budget. Moreover, additional costs from tariffs are coming at a time when major weapon systems are becoming more difficult to deliver on cost and on time. As tariffs push costs higher, each dollar of public money will deliver less defense.

Critical infrastructure is a second dimension of national security where tariffs risk doing more harm than good. The Department of Homeland Security lists sixteen critical infrastructure sectors, covering food and agriculture, water, chemicals, communications, and others. Although specific impacts depend on the sector, all now face higher costs for components.

Consider power and electricity. Most power generation technologies are expected to face cost increases of 6 percent to 11 percent, according to Wood Mackenzie. The United States imports more than 80 percent of its large power transformers, mostly from Canada and Mexico, and contracts on those imports are often linked to the price of steel. In 2021, the Commerce Department concluded that Section 232 tariffs made it more difficult for U.S. companies to produce transformer components, effectively exacerbating a risk that the tariffs had sought to address.

Tariffs could also slow the United States’ deployment of artificial intelligence (AI) infrastructure. South Korea, Taiwan, and Vietnam are key sources for semiconductors, servers, and other important data center components and face “reciprocal tariffs” of 25 percent, 32 percent, and 20 percent, respectively. Even if tariffs on South Korea and Taiwan are lowered through successful negotiations, a pending Section 232 investigation on semiconductors is expected to raise costs. In a bleaker scenario, if talks with China deteriorate, U.S. data center developers could face additional costs of more than $11 billion annually, according to Altana.

Finally, tariffs are also taking a toll on U.S. relations with partners and allies. Recent Ipsos polling across twenty-nine countries reveals a significant decline in global perceptions of the United States in response to President Trump’s economic policies. Majorities in eighteen countries, including twelve treaty allies, believe Trump’s economic policies will have a negative impact on their country’s relationship with the United States. For the first time in a decade of Ipsos’s tracking, China is now viewed more positively than the United States in terms of global influence.

This shift in public sentiment encourages elected leaders to derisk from the United States. French President Emmanuel Macron has called for European “strategic autonomy,” and is pushing for European replacements to U.S. cloud services, satellites, and fighter jets, among other areas. This sentiment is shared by other U.S. allies. “My absolute priority will be to strengthen Europe as quickly as possible so that, step-by-step, we can really achieve independence from the USA,” German Chancellor Friedrich Merz said after being elected in February.

To be sure, it is still early to measure the impact of tariffs on U.S. national security. Any benefits could well take longer to materialize, given that supply chains can take years to adjust. But in the meantime, mounting costs underscore the need for greater clarity of U.S. objectives, measurable targets, and exemptions to minimize unintended consequences.