Tariffs and Unemployment
Uncertainty can indeed increase Unemployment
Tariffs by themselves aren’t an automatic unemployment machine - it’s the economic context that determines whether they cause big job losses.
Tariffs are mostly a redistribution within the economy, not necessarily a net destruction of jobs.
When the US imposes tariffs, some industries (e.g., steel, cars) gain protection from foreign competition. They may hire more workers.
Other industries that rely on imports (e.g., carmakers using imported steel, retailers selling foreign goods) face higher costs and might cut jobs.
Unless tariffs are very large and the losses outweigh the gains, the overall unemployment rate might not move much — it’s more about shifting jobs around.
In 1929, tariffs were high, but the economy was at full employment.
The 1920s US economy was strong, demand was high, and labor markets were tight.
High tariffs then were part of a long-standing protectionist system — they weren’t a sudden shock that disrupted investment or trade patterns.
This is why unemployment in 1929 was below 3% despite a 15.8% average tariff rate.
Why today’s economists worry more about Trump-style tariffs.
The level of tariffs is less damaging than the uncertainty about them.
Businesses make big investments (factories, supply chains) based on expectations of stable rules.
If they don’t know whether tariffs will be 10% or 35% next year, they may delay or cancel investment.
This investment freeze can reduce future economic activity and jobs, even before tariffs bite directly.
Bottom Line
Tariffs don’t automatically cause high unemployment - they can just change where jobs are.
Uncertainty, however, can slow investment across the economy, which can cause unemployment to rise.
So tariffs can coexist with low unemployment, but they typically make the economy less efficient and prosperous overall.
In Short:
In a note published on Friday, Nordea Bank says basically, if I may paraphrase, the following:
If immigration continues to fall sharply, the US labor force could shrink or stop growing by 2026.
In that world, the economy wouldn’t need to create many (or any) new jobs each month to keep unemployment steady — because there wouldn’t be many new workers to absorb.
Even zero job growth (or small job losses) might not push unemployment up — the “balance” between labor demand and labor supply would still hold.
