Trump’s Tariffs Are About Rent Extraction, Not Rent-Seeking

Rent-seeking, which refers to interest groups attempting to get privileges from the government, is an economist’s classic answer for why protectionist legislation passes—even though it impedes general economic welfare. Protectionism is bad for most people, but it helps a narrow interest group that mobilizes politically. The interest group supports the politicians willing to help it, and in turn, those politicians support the desired measures. It’s an exchange of political support and campaign contributions for policies that generate profits above the market equilibrium. 

Average people are worse off, but they are too large a group to effectively coordinate political counter-pressure. Individually, each person loses little. Together, this is known as concentrated benefits and dispersed costs. 

However, President Trump’s tariffs do not fit the classic rent-seeking model. Instead of a handful of targeted tariffs to protect specific industries, Trump has imposed sweeping tariffs on the world. Manufacturers who once asked for protective tariffs now ask for exemptions for products they import. Nearly two-thirds of American imports are inputs used by manufacturers, who are now struggling to cope with increased prices. 

If Trump did not impose these tariffs to support rent-seeking firms, then why did he do it? Some answer that he has always been ideologically committed to tariffs. They say he just likes them, his ideology is irrational, and he is irrational for sticking to it, but he sticks to it nonetheless.

But it seems unlikely that Trump would undertake such momentous, sweeping measures irrationally. People make mistakes for ideological reasons, but that’s probably not his only motivation.

The tariffs benefit Trump personally because they allow him to engage in rent extraction. Rent extraction is the passage of, or the threat to pass, a harmful policy unless a targeted group gives political support. It can also take the form of a threat to remove existing protections for an industry. Rent extraction puts the bargaining initiative in a politician’s hands. 

Now that Trump has imposed tariffs that hinder the U.S. economy, all he has to do is wait for interest groups to ask for exemptions. His primary benefit is not from interest groups pushing for tariffs, but rather from his power to grant exemptions.

He benefited from his ability to hand out exemptions during his first term. Research suggests that handouts were less likely to go to firms that supported his political opponents, and were more likely to go to firms that supported him. 

Fossil fuels were exempted from the tariffs, and Big Oil contributed $96 million to the Trump reelection campaign. PET resin, the material used to make plastic bottles, was exempted; that benefits Reyes Holding and Coca-Cola, who were both significant supporters of the campaign. American footwear brands are currently asking for exemptions. Trump offered some exemptions to automakers after major lobbying efforts. The value of tariff lobbying has increased by 277 percent since the first quarter of 2024.

Unlike in Trump’s previous term, no formal process exists to request an exemption. The process of requesting exceptions has moved out of view, and now industries must lobby the government and have meetings behind closed doors instead. Government discretion and lack of public accountability are perfect conditions for corruption. 

President Trump wields considerable power through the granting of tariff exemptions. That power may have been an important motivation for the sweeping tariffs.