WASHINGTON (AP) — President-elect Donald Trump has outlined what he sees as a comprehensive solution to what ails America: massive new tariffs on foreign goods entering the United States.
On Monday, Trump sent shockwaves across the country's northern and southern borders, vowing to impose sweeping new tariffs on Mexico, Canada and China as soon as he takes office as part of his efforts to crack down on illegal immigration and drugs.
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In two posts on his website Truth Social, Trump criticized the influx of illegal immigrants, even though concerns at the southern border were hovering near their lowest levels in four years.
He said he would impose a 25% tax on all products entering the country from Canada and Mexico, and an additional 10% tariff on goods coming from China, as one of his first executive orders.
He said the new definitions will remain in place “until such time as drugs, especially fentanyl, and all illegal aliens stop this invasion of our country!”
The president-elect asserts that tariffs — essentially import taxes — will create more factory jobs, reduce the federal deficit, lower food prices, and allow the government to subsidize child care.
Economists are generally skeptical, arguing that tariffs are a mostly ineffective way for governments to raise money. They are particularly upset by Trump's recent tariffs.
Carl B. said: Weinberg and Rubeela Faruqi, economists at High Frequency Economics, said on Tuesday that energy, cars and food supplies would be particularly hard hit.
“Imposing tariffs on trade flows into the United States without first preparing alternative sources for the affected goods and services will immediately raise the prices of imported goods,” Weinberg and Farocki wrote. Since many of these goods are consumer goods, families will become poorer.
High Frequency Economics believes the threats are not intended to support a new trade policy, but are instead a tool to spark some changes along the border and for imports from Canada, Mexico and China.
Although Vice President Kamala Harris criticized Trump's tariff threats as unserious during her failed bid for the presidency, the Biden-Harris administration has maintained the Trump administration's taxes on $360 billion worth of Chinese goods. A 100% tariff was imposed on Chinese electric cars.
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In fact, in recent years, the United States has gradually retreated from the role it played after World War II in promoting global free trade and reducing customs tariffs. This shift was a response to the loss of manufacturing jobs in the United States, widely attributed to unrestricted trade and an increasingly aggressive China.
Tariffs are a tax on imports
It is usually charged as a percentage of the price the buyer pays to the foreign seller. In the United States, tariffs are collected by Customs and Border Protection agents at 328 ports of entry across the country.
Tariff rates range from passenger cars (2.5%) to golf shoes (6%). Tariffs could be lower for countries with which the United States has trade agreements. For example, most goods can move between the United States, Mexico and Canada duty-free due to Trump's US-Mexico-Canada trade agreement.
There is a lot of misinformation about who actually pays customs duties
Trump insists that tariffs are paid by foreign countries. In fact, it is the importers – US companies – who pay the tariffs, and the money goes to the US Treasury. These companies, in turn, usually pass on their higher costs to their customers in the form of higher prices. That's why economists say consumers usually end up footing the bill for tariffs.
However, tariffs can harm foreign countries by making their products more expensive and difficult to sell abroad. Yang Zhou, an economist at Fudan University in Shanghai, concluded in a study that the tariffs imposed by Trump on Chinese goods caused more than three times more damage to the Chinese economy than to the American economy.
The tariffs are mainly intended to protect domestic industries
By raising import prices, tariffs can protect domestic manufacturers. They may also punish foreign countries for unfair trade practices, such as subsidizing their exporters or dumping products at unfairly low prices.
Before the creation of the federal income tax in 1913, tariffs were a major driver of government revenue. From 1790 to 1860, tariffs accounted for 90% of federal revenue, according to Douglas Irwin, an economist at Dartmouth College who has studied the history of trade policy.
Tariffs lost popularity as world trade grew after World War II. The government needed much larger revenue sources to finance its operations.
In the fiscal year ending September 30, the government is expected to collect $81.4 billion in tariffs and fees. This is a small amount compared to the $2.5 trillion expected to come from individual income taxes and $1.7 trillion from Social Security and Medicare taxes.
However, Trump wants to enact a budget policy that resembles what was in place in the nineteenth century.
He has claimed that tariffs on agricultural imports could lower food prices by helping American farmers. In fact, tariffs on imported food products will almost certainly push up grocery prices by reducing choices for consumers 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 convince Mexico to crack down on waves of Central American migrants crossing Mexican territory on their way to the United States.
Trump even sees tariffs as a way to prevent wars.
“I can do it with a phone call,” he said at an August rally in North Carolina.
If another country tried to start a war, he said he would issue a threat:
“We will charge you 100% tariffs. Suddenly, the president or the prime minister or the dictator or whoever is running the country says to me: ‘Sir, we are not going to war.’”
Economists generally view tariffs as self-destructive
Tariffs increase costs for companies and consumers who depend on imports. They are also likely to provoke retaliation.
For example, the European Union responded to Trump's tariffs on steel and aluminum by imposing taxes on American products, from bourbon to Harley Davidson motorcycles. Likewise, China responded to Trump's trade war by imposing tariffs on American goods, including soybeans and pork in a campaign calculated to hurt his supporters in agricultural countries.
A study by economists at MIT, the University of Zurich, Harvard and the World Bank concluded that Trump's tariffs failed to restore jobs in America's heartland. The study found that the tariffs “neither raised nor reduced employment in the United States” as they were supposed to protect jobs.
Despite Trump's 2018 taxes on imported steel, for example, the number of jobs at US steel mills has barely changed: it has remained flat at about 140,000. By comparison, Walmart alone employs 1.6 million people in the United States.
Worse still, retaliatory taxes imposed by China and other countries on American goods have had “negative employment impacts,” especially for farmers, the study found. These retaliatory tariffs were only partially offset by billions in government aid that Trump distributed to farmers. Trump's tariffs also hurt companies that depend on the targeted imports.
But if Trump's trade war failed as a policy, it succeeded as a policy. The study found that support for Trump and Republican congressional candidates rose in the regions most vulnerable to import tariffs — the industrial Midwest and heavily manufacturing Southern states like North Carolina and Tennessee.
