Donald Trump accepting the presidential nomination at the Republican National Convention in Milwaukee. Photo / Getty Images
In March 2018, a day after announcing sweeping tariffs on metals imported from America’s allies and adversaries alike, President Donald J. Trump took to social media to share one of his central economic philosophies: “Trade wars are good, and easy to win.”
As President, Trump presided over the biggest increase in US tariffs since the Great Depression, hitting China, Canada, the European Union, Mexico, India and other governments with stiff levies.
They hit back, imposing tariffs on American soybeans, whiskey, orange juice and motorcycles. US agricultural exports plummeted, prompting Trump to send US$23 billion ($38 billion) to farmers to help offset losses.
Now, as he runs again, Trump is promising to ratchet up his trade war to a much greater degree.
He has proposed “universal baseline tariffs on most foreign products”, including higher levies on certain countries that devalue their currency. In interviews, he has floated plans for a 10% tariff on most imports and a tariff of 60% or more on Chinese goods. He has also posited cutting the federal income tax and relying on tariffs for revenue instead.
Trump, who once proclaimed himself “Tariff Man”, has long argued that tariffs would boost American factories, end the gap between what America imported and what it exported, and increase American jobs.
His first round of levies hit more than US$400b ($673b) of imports, including steel, solar panels, washing machines and Chinese goods like smartwatches, chemicals, bicycle helmets and motors.
His rationale was that import taxes would revive American manufacturing, reduce reliance on foreign goods and allow US companies to better compete against cheap products from China and other countries.
Economists say the tariffs did reduce imports and encouraged US factory production for certain industries, including steel, semiconductors and computer equipment. But that came at a high cost, one that most likely offset any overall gains. Studies show the tariffs resulted in higher prices for American consumers and factories that depend on foreign inputs, and reduced US exports for goods that were subject to retaliation.
Trump is now envisioning taxing perhaps 10 times as many imports as he did during his first term, an approach that economists say could trigger a trade war that drives up already-high prices and plunges the US into a recession.
David Autor, an economics professor at the Massachusetts Institute of Technology, said the proposals would have “a very large effect on prices almost immediately”.
“I don’t think they’ll do it,” he said. “It could easily cause a recession.”
In a recent letter, 16 Nobel prize-winning economists wrote they were “deeply concerned” about the risks a second Trump administration posed to the economy, inflation and the rule of law.
“We believe that a second Trump term would have a negative impact on the US’s economic standing in the world and a destabilising effect on the US’s domestic economy,” they wrote.
Trump and his supporters have a much more positive view of tariffs, arguing they serve as leverage with foreign governments, reduce the trade deficit with China and result in the growth of US manufacturing jobs.
“I happen to be a big believer in tariffs because I think tariffs give you two things: they give you economic gain, but they also give you political gain,” Trump said on a recent podcast.
Trump campaign national press secretary Karoline Leavitt said in a statement that “the American people don’t need worthless out-of-touch Nobel prize winners to tell them which president put more money in their pockets”.
“President Trump built the strongest economy in American history,” she said.
“In just three years, Joe Biden’s out-of-control spending created the worst inflation crisis in generations.”
Jamieson L. Greer, a partner in the international trade team at King & Spalding who was involved with China trade negotiations during the Trump administration, said the view of Trump officials was that tariffs “can help support US manufacturing jobs in particular, especially to the extent that they’re remediating an unfair trade practice”.
China has long engaged in policies that disadvantage American workers, but other countries also have unfair trade and tax policies or misaligned currencies, Greer said.
“If you level out that playing field, it makes it so that Americans don’t have to compete unfairly,” he said.
Trump’s tariffs have domestic supporters among the industries that have benefited. President Biden gave them his own stamp of approval by choosing to keep Trump’s China tariffs in place while adding some of his own, including on electric cars, steel and semiconductors.
But some of the industries that were hit hardest by Trump’s trade wars are not looking forward to a sequel. Executives in sectors like retail and spirits worry that another round of tariffs could reignite tensions, raise their costs and again close off critical markets abroad.
Spirit exports to Europe declined 20% after the European Union imposed a 25% retaliatory tariff on American whiskey in response to the Trump administration’s tariffs on steel and aluminium. And China tariffs increased the prices retailers had to pay for their products, forcing them to raise prices for their customers or cut into their profits.
The power of tariffs to help or hinder exports is clear in industries that eventually won a reprieve. In 2021, whiskey tariffs were temporarily suspended as part of a deal the Biden administration made with the European Union. US whiskey exports to the bloc rose from US$439 million in 2021 to US$705m last year. Research suggests the tariffs did accomplish their goal of increasing domestic production in the industries they protected, but did so by imposing other costs on the US economy.
A non-partisan government study found the tariffs on foreign steel and aluminium increased US production of those metals by US$2.2 billion in 2021. But American factories that use steel and aluminium to make things like cars, tin cans and appliances had to pay higher costs for their materials, reducing their output by $3.5 billion in the same year.
In terms of inflation, studies have estimated American households faced higher prices as a result of the tariffs — from several hundred dollars to more than US$1000 annually. But economists say consumers probably did not associate the higher prices they paid with the tariffs, given that inflation was low throughout Trump’s tenure and the economy was strong.
While the economy remains robust, prices have spiked since 2021, and inflation remains elevated. That could make tariff-induced price increases more obvious and more painful this time around.
A recent analysis by the Peterson Institute of International Economics found that if Trump did impose a 10% tariff on all goods and a 6% tariff on China, it would cost a typical middle-income household about US$1700 in increased expenses each year.
Another analysis, by the right-leaning American Action Forum, estimated a 10% could impose additional annual costs of up to US$2350 per American household. Adding a 60% tariff on China would add another US$1950 to household costs.
The burden of those tariffs would fall more heavily on poorer households, because they spend a larger share of their income on everyday products. That could ultimately backfire on Trump, given that voter concerns about inflation are top of mind.
Written by: Ana Swanson and Alan Rappeport
© 2024 THE NEW YORK TIMES
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