The sell behind the new tariffs on foreign goods is that they will benefit U.S. manufacturing and create jobs. Many people have hope that this will reinvigorate the economy and create new opportunities. Some others fear these policies are too extreme and short-sided. Regardless, here is what we might expect from the following years.
Trump has, in practice, unlimited
power to affect foreign trade. Congress has given the president the
power to make laws in order to protect the market from harmful foreign
practices or international emergencies. Starting from 1934 to 2015, Congress has progressively given the Chief Executive more authority to negotiate trade deals and set tariffs on foreign goods. This is due to ambiguous language and broadly defined parameters, our current president is theoretically able to fulfill all of his tariff related promises. However, the way these are
define allow for anything any president could wish it for. There may be
legal challenges in court, but there is no guarantee these challenges
might stick.
There are a lot of things to be
said about the presidential race this year. One thing in particular
involves tariffs. The word President Trump has called, "the most
beautiful word in the dictionary." One of the main talking points of his
campaign involves a new foreign trade plan meant to reinvigorate the
American economy. Mostly involving tariffs and other dues meant to
disincentivize importation and offshoring. The plan is to impose a 10-20% tariff on most foreign goods as a general rule. However, there would be a 60% tax on Chinese goods and a conclusion to permanent normal trading relations. The idea has been tossed around to place tariffs of 100% to 1000% on Mexico. In addition, a possible "reciprocal" tariff may be implemented in which would match the tariff rates for other countries to what those countries have placed on the United States. Another selling point of these policies is making the income tax obsolete and repealing it for US tax payers. Whether this will happen is a hotly debated topic.
Many economists predict these additional costs will be passed on to the regular consumer. Whenever a tariff is introduce someone has to carry to increase in costs. During the first Trump administration, there were additional tariffs imposed, 25% for steel and 10% on aluminum (with exempted suppliers and exclusions granted on a case-by-case basis). And of course, there were the tariffs placed on Chinese imports. These new policies led to a shift in supply and prices. Steel imports declined by 17.2% from 2017 to 2021. Many steel manufacturers went on to invest into domestic steel production during this time. In addition, this 4 year period was marked with an increase in average monthly steel prices of 166.1%. Aluminum has also been affected by these tariffs during the first Trump administration. With imports declining by 19%, and prices spiked in 2018 to then fall to then rise again in June 2020, leading to an overall 45% increase in price. A study done by the National Bureau of Economic Research, that went into detail of what the effects of the Trump tariffs were in 2016-2020. Foreign steel exporters responded to the tariffs by lowering their prices, "Since China is only the tenth largest steel supplier to the U.S. market, these costs have largely been borne by regions like the EU, South Korea and Japan.2 This is likely good news for U.S. firms that demand steel, but bad news for workers hoping that steel tariffs will bring back jobs." (Amiti, Redding and Weinstein, 2020). Interestingly, according to the study, these tariffs have near insignificant pass through, meaning that around 100% of the cost from the taxes have passed on to the consumer and US importers. A study by the Peterson Institute for International Economics, they estimated that this plan would cost the average household an additional $2,600 annually on average.
On the business level, whether tariffs help or hurt depends on the industry. For example, in a study done by the United States International Trade Commission, the Economic Impact of Section 232 and 301 Tariffs on U.S. Industries, it was found that the tariffs affected specific industries differently. For example, steel and aluminum production was boosted by $2.2 billion in 2021, while car, food packaging, and appliances that have to use those metals had to pay higher prices, leading to a reduction of $3.5 billion. This means that there will be winners and losers. Those firms who can increase their prices due to the tariffs will profit while those who have to buy from those will be at a disadvantage.
It should be noted that the rest of the world will respond to Trump's policy change. If we are to look to the president's first term, we can see what happened when he put into motion his previous foreign policy plan. When those tariff went into effect, several foreign powers also taxed American exports. This naturally led to US exports dropping as they became less profitable. It is entirely possible that in the near future these policies may ignite a trade war between the US and China, sending shock waves through the global economy.
Many people have said that Trump's promises will not translate into actual policy. However, from his previous administration, we know that Trump will most likely do everything in his power to bring them into reality. It is always hard to see into the future, and foresight is always 20/20, so we cannot say for sure what will happen next. However, it is important to observe what is happening and what has happened, so we can prepare for what might happen next. Regardless, if one thing is for sure, the next 4 years will be eventful.
BIBLIOGRAPHY
https://www.usitc.gov/publications/332/pub5405.pdf
https://www.nber.org/system/files/working_papers/w26610/w26610.pdf
https://www.piie.com/research/piie-charts/2024/trumps-bigger-tariff-proposals-would-cost-typical-american-household-over
https://crsreports.congress.gov/product/pdf/IF/IF11400
https://www.cato.org/briefing-paper/presidential-tariff-powers-need-reform#introduction
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