Economic analysis has long established the importance of democratic governance, the rule of law, and stable institutions for economic outcomes. The current erosion of American democratic norms should concern economic researchers and analysts not only for its political and social consequences but also as an economic threat. We examine this relationship through the lens of trade policy and the tariffs imposed by the current administration.

Why This Matters

Economic research and policy development have not traditionally prioritized consideration of how economic policy affects democracy, but the current moment calls for reevaluation. Polling data directly connects an erosion in faith in democracy with perceived economic insecurity. Although the current tariff policy seeks to reverse the economic and political consequences of globalization and reshore jobs, the tariffs are likely to leave workers worse off (Congdon, Jacobs, and Kobes 2025). This damage to the labor market risks driving further dissatisfaction with democratic governance, which can in turn have economic consequences.

Key Takeaways

The trade liberalization efforts that began in the 1990s brought unequal economic gains and left many workers behind, with especially negative effects for workers with less than a college degree. Policies such as the social safety net and reskilling did not offset job losses. The ensuing backlash against free trade has been one of the factors fueling support for populist candidates, some of whom espouse antidemocratic messages. The current tariffs may feed this cycle by reducing real earnings, depressing employment, and suppressing productivity growth and long-term wages.

The lessons of trade policy also point to a path forward—a broader economic policy that brings distributional and political factors more fully into the analysis:

• Trade policy—In the near term, the recently imposed tariffs should be reduced to improve employment, earnings, and affordability. In the longer term, instead of returning to past trade policies, we should use targeted, strategic tariffs and trade restrictions to advance clear economic or other policy objectives that coordinate with industrial policy.
• Economic trade policy—Economic policy will need to better offset the economic shocks of dislocation, such as by reviving and updating policies like the Trade Adjustment Assistance program or through innovations in social insurance.
• Labor market policy—To rebuild trust in democratic institutions, we need updated worker protections and labor market regulations, such as raising the minimum wage, paired with policies that build worker power and promote competitive labor markets.