Trump and Tariffs, Tariffs and Trump
In the weeks that have followed President Trump's inauguration, the public has been bombarded with various announcements and changes regarding domestic and foreign policy. It has been overwhelming and concerning. One such decision which has raised debate is his apparent love of tariffs.
Tariffs are widely misunderstood by the general public and become a “buzzword” that politicians throw around to appease voters. So let’s quickly look at how tariffs work. Tariffs are taxes on import goods and are often thought to help alleviate competition of foreign goods in the domestic market. In truth, there are several benefits to tariffs. Tariffs are typically used to protect specific domestic markets. These domestic markets are protected for numerous reasons such as national security concerns or combating monopolization of an industry in a foreign country. However, tariffs also have some negative effects. For starters, there are many misconceptions about who pays for the tariffs. Trump has stated that the foreign country will pay for it. The actual cost will most likely fall upon the American economy. The burden will fall on consumers if retailers increase their prices to offset the high import costs. Meanwhile, American companies that rely on imported materials for manufacturing have to reduce the amount of capital they have for other business investments, harming the overall American economy. Imposing a tariff on imports can also increase the value of the American dollar, which makes American exports more expensive and less attractive in foreign countries. So as we can see tariffs are not always effective and even have the possibility of harming the economy. So why is Trump such a big proponent of them?
President Trump has long promised to use tariffs to help raise the country’s revenue, balance out trade, and apply force to foreign countries. For example, his short-lived tariffs on Mexico and Canada were largely to put pressure on the US’ neighbors on issues such as illegal immigration and drug trafficking. However, if the threat of tariffs successfully makes a country agree to the US demands, then the question of how to raise US revenue still remains. In fact, the tariffs are predicted to have an adverse effect on the economy. The tariffs on Canada and Mexico were found to reduce long-run GDP by 0.3 percent while the tariffs on China would reduce the GDP by 0.1 percent. Trump’s goals with these tariffs seem rather contradictory. They feel more as if to prove he is following through with his campaign promises rather than enacting lasting benefits for the nations. On February 10, Trump imposed a 25 percent tariff on steel and aluminum imports. Now this move could see an increase in steel prices and jobs, but these gains would be offset by the losses in the manufacturing sectors that rely on steel for production. In fact, in 2018, Trump’s tariffs led to a loss of 75,000 manufacturing jobs.
The most recent headline in Trump’s love of tariffs– on Thursday, February 13, trust signed his plans for reciprocal tariffs on US trading partners with the goal of starting new trade negotiations and bringing manufacturing back to the United States. In the coming weeks, reports on each individual country will be produced and tariffs will be customized for each nation. However, there is the fear that countries might retaliate with their own tariffs, putting American consumers and businesses in an uncertain position. Reciprocity-based tariffs drastically altered the US trade policy as well as violated the W.T.O.’s non-discrimination for trade. What is also worrisome is Trump appears to be pushing through with this trade policy with seemingly little regard for the US and its international relations. If US trade partners feel threatened by these tariffs then this further sours relations and will ultimately weaken the US’ global power and reputation.
Tariffs are an economic strategy that has been used by policymakers for years. If used in the short term and focused on targeting specific industries, they can be very effective. However, Trump’s rapid announcements of various tariffs feel overwhelming and alarming with the potential of widespread consequences for both the economy and US global relations. It continues to push the country toward uncertainty, leaving us to wait and see how these policies will unfold.