Donald Trump has unveiled what he sees as an all-purpose fix for what ails America: Impose massive new tariffs on foreign goods entering the United States.
The former president and current Republican nominee says the tariffs — essentially import taxes — will create more factory jobs, reduce the federal deficit, lower food prices and allow the government to subsidize child care.
He says even tariffs can promote world peace.
“Taxes are the greatest thing ever invented,” Trump said this month in Flint, Michigan.
As president, Trump imposed booming tariffs — targeting imported solar panels, steel, aluminum and everything good from China.
“Tharifi Man,” he called himself.
This time, he’s gone too far: He’s proposed a 60% tariff on goods from China — and up to a 20% tariff on everything else the United States imports.
This week, he upped the ante even more. To punish equipment maker John Deere for its plans to move some product to Mexico, Trump vowed to pay tariffs on anything Deere tries to export to the United States – 200%.
And he threatened to hit Mexican-made goods with 100% tariffs, a move that would risk blowing up the trade deal the Trump administration has negotiated with Canada and Mexico.
Mainstream economists generally distrust tariffs, viewing them as an inappropriate way for governments to raise money and promote prosperity. They are particularly alarmed by the recent tariffs proposed by Trump.
This week, a report from the Peterson Institute for International Economics concluded that Trump’s main tariff proposals – assuming that the targeted countries retaliate with their own costs – will reduce more than one percent of the US economy by 2026 and cause inflation to reach two percent higher. next year than otherwise.
Vice President Kamala Harris has dismissed Trump’s tax threats as absurd. His campaign cited a report that found Trump’s 20% tariffs would cost the average family about $4,000 a year.
But the Biden-Harris administration itself has a taste for pricing. It kept the tariffs that Trump imposed on $360 billion in Chinese goods. It also imposed a 100% tariff on Chinese electric cars.
Indeed, the United States in recent years has gradually retreated from its post-World War II role of promoting free global trade and low tariffs. That change was a response to the loss of US manufacturing jobs, largely caused by unrestricted timber trade and an aggressive China.
Taxes are taxes on goods purchased
They are usually charged as a percentage of the price the buyer pays the foreign seller. In the United States, tariffs are collected by Customs and Border Protection agents at 328 ports of entry across the country.
Prices range from passenger cars (2.5%) to golf shoes (6%). Taxes may be lower in countries with which the United States has trade agreements. For example, many goods can move between the United States, Mexico and Canada duty-free thanks to Trump’s US-Mexico-Canada trade agreement.
There is a lot of misinformation about who really pays the prices
Trump insists that the prices are paid by foreign countries. In fact, it is foreign companies – American companies – that pay the prices, and the money goes to the US Treasury. Those companies, in general, pass their higher costs on to their customers in the form of higher prices. That’s why economists say that consumers usually end up paying the tax.
However, tariffs can hurt foreign countries by making their products more expensive and harder to sell abroad. Yang Zhou, an economist at Shanghai’s Fudan University, concluded in a study that Trump’s tariffs on Chinese goods caused three times as much damage to the Chinese economy as they did to the American economy.
Tariffs are designed mainly to protect domestic industries
By raising the price of imports, tariffs can protect homegrown producers. They can also punish foreign countries for engaging in unfair trade practices, such as subsidizing their exporters or dumping products at unfairly low prices.
Before the federal income tax was established in 1913, tax rates were the main driver of government revenue. From 1790 to 1860, tariffs accounted for 90% of federal income, according to Douglas Irwin, a Dartmouth College economist who has studied the history of trade policy.
Prices were not favorable as world trade expanded after World War II. The government needed very large sources of money to finance its operations.
In the fiscal year ending Sept. 30, the government is expected to collect $81.4 billion in taxes and fees. That’s a fraction of the $2.5 trillion expected to come from personal income taxes and $1.7 trillion from Social Security and Medicare taxes.
However, Trump wants to implement a budget policy similar to what existed in the 19th century.
He argued that a farm import tax could lower food prices by helping American farmers. In fact, tariffs on imported food products are likely to increase grocery prices by reducing consumer choice and competition for American producers.
Tariffs can also be used to pressure other countries on issues that may or may not be related to trade. In 2019, for example, Trump used the threat of tariffs as leverage to persuade Mexico to slow the flow of Central American migrants crossing Mexican territory into the United States.
Trump even sees tariffs as a way to prevent wars.
“I can do it over the phone,” he said at an August rally in North Carolina.
If another country tries to start a war, he said he will issue a threat:
“We will charge you 100% of the rates. And suddenly, the president or the prime minister or the dictator or whoever the hell is running the country says to me, ‘Sir, we’re not going to war.’ “
Economists often look at winning prices themselves
Tariffs raise costs for companies and consumers who rely on imports. They may also take revenge.
The European Union, for example, retaliated against Trump’s steel and aluminum tariffs by taxing US products, from bourbon to Harley-Davidson motorcycles. Similarly, China responded to Trump’s trade war by slapping tariffs on American goods, including soybeans and pork in a move calculated to hurt its supporters in the farm country.
A study conducted by economists at the Massachusetts Institute of Technology, the University of Zurich, Harvard and the World Bank concluded that Trump’s tariffs have failed to restore jobs in the United States. Taxes “did not raise or lower US employment” where they should have protected jobs, the study found.
Despite Trump’s 2018 tariffs on imported steel, for example, the number of jobs in US steel plants has not decreased: They remain at about 140,000. In comparison, Walmart alone employs 1.6 million people in the United States.
Worse, retaliatory tariffs imposed by China and other nations on US goods “have had a negative impact on employment,” particularly for farmers, the study found. These retaliatory costs are offset by half of the billions in government aid Trump has given to farmers. Trump’s tariffs have also hurt companies that rely on targeted sales.
If Trump’s trade war was volatile as a policy, it was successful as a politics. The survey found that support for congressional and Republican candidates rose in areas most exposed to foreign investment — the industrial Midwest and heavy South states like North Carolina and Tennessee.
—Paul Wiseman, AP Economics writer
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