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Trump, Trade and Tariffs

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During the campaign, Donald Trump regularly promised to increase tariffs – a tax on imports – on several countries. Immediately after the election he appeared eager to follow through on this threat, announcing additional 10 percent across the board tariffs on Chinese imports, and 25 percent tariffs on items from Canada and Mexico. He also threatened to impose 100 percent tariffs on the BRICS countries, and has said that EU nations could face new restrictions if they do not agree to buy more oil and gas from the United States.
The stated rationale for the Mexico and Canada announcements was to punish these countries over immigration or drug trafficking. During the campaign, Trump talked about tariffs (what he regularly calls a “beautiful word”) as part of an overall economic plan that would benefit workers and consumers. As he told voters, “We will end inflation and make America affordable again… Groceries, cars, everything. We’re going to get the prices down.” In an interview after the election, Trump said that tariffs “cost Americans nothing,” and even claimed that he had stopped wars just by threatening new tariffs.
Some polling suggests that voters were moderately supportive of Trump’s tariff rhetoric, though polls since the election paint a murkier picture, with slight majorities saying they think Trump’s tariffs will raise prices.
Of course, it remains to be seen how much of this will be carried out in the real world. There are indications that Trump intends to do exactly what he said he would; other observers – including Wall Street investors – believe that Trump is either exaggerating, or he considers tariffs a negotiating tactic. Nonetheless, there are already indications that corporate lobbying to evade tariffs is picking up. There was a wave of such lobbying activity in the first Trump administration, with hundreds of thousands of waiver requests filed. One study found that companies were more likely to receive an exemption if they had donated to Republican candidates.
There are arguments to be made in favor of targeted tariffs as a means to bolster specific domestic industries, or to protect impacted workers. By some accounts, the Biden administration’s approach – tariffs matched with strong industrial policy and a variety of incentives – helped create hundreds of thousands of new domestic construction and manufacturing jobs.
The import taxes that Trump put in place in his first term were much smaller than what he is threatening now, and it is not clear that they produced notable economic benefits for US consumers or workers. As CEPR co-director Mark Weisbrot recently pointed out:
“There is general agreement in the economic research on the effects of Trump’s trade and tariff wars in his first term as president, in which he placed tariffs on about $380 billion of US imports. The overall impact on living standards for US workers and most Americans is found to be negative, with the cost of the tariffs being absorbed by US consumers. Employment overall did not increase, and may have fallen due to the negative impact of retaliatory tariffs.”
Given that the kinds of tariffs Trump is advocating are broader in scope and much larger than those that were implemented in his first term, it is difficult to predict their effects. The dollar may strengthen, making imports – including those from China – cheaper. This could offset some of the effects of tariffs on prices. The consensus seems to indicate that economists expect to see prices rise as a result of Trump’s proposal; Trump’s proposed tariffs targeting imports from Mexico and Canada have many observers expecting to see significant impacts in the food sector.
As for bringing down prices, Trump was already walking back those claims in mid-December. When asked in one interview if he could guarantee that Americans wouldn’t see price increases due to his new tariffs, he said, “I can’t guarantee anything.”