Trump’s latest tariff plan targets many countries. What does this mean for the US?

WASHINGTON – President-elect Donald Trump has identified what he says is a universal solution to the problems plaguing America: massive new tariffs on foreign goods entering the United States.

On Monday, Trump sent shock waves across the country’s northern and southern borders by promising to impose new tariffs on Mexico, Canada and also China as soon as he takes office as part of his efforts to crack down on illegal immigration and drugs.

In two posts on his Truth Social website, Trump condemned the influx of undocumented migrants even as apprehensions at the southern border remain at a four-year low.

He announced a 25% tax on all products entering the country from Canada and Mexico and an additional 10% tariff on goods from China, which will be one of his first executive orders.

He said the new tariffs will remain in place “until 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, viewing tariffs as a largely inefficient way for governments to raise money. They are particularly concerned about Trump’s latest tariff proposals.

Carl B. Weinberg and Rubeela Farooqi, economists at High Frequency Economics, said Tuesday that energy, autos and the food supply would be particularly hard hit.

“Imposing tariffs on trade to the United States without first preparing alternative sources for the goods and services in question will result in an immediate increase in the price of imported goods,” Weinberg and Farooqi wrote. “Because many of these goods are consumer goods, households will become poorer.”

High Frequency Economics believes the threats are not intended to support new trade policy and are instead a tool to trigger some changes along the borders and on imports from Canada, Mexico and China.

Although Vice President Kamala Harris criticized Trump’s tariff threats as frivolous during her unsuccessful presidential bid, the Biden-Harris administration has maintained taxes imposed by the Trump administration on $360 billion in Chinese goods. It also imposed 100% tariffs on Chinese electric vehicles.

Indeed, in recent years the United States has gradually retreated from its post-World War II role of promoting global free trade and lower tariffs. The shift was a response to U.S. manufacturing job losses, widely attributed to unfettered trade and an increasingly aggressive China.

Customs duties are an import tax

They are usually charged as a percentage of the price the buyer pays to the overseas seller. In the United States, customs duties are collected by Customs and Border Protection agents at 328 ports of entry throughout the country.

Tariff rates range from passenger cars (2.5%) to golf shoes (6%). Tariffs may 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 thanks to Trump’s US-Mexico-Canada trade deal.

There is a lot of misinformation about who actually pays tariffs

Trump insists that tariffs should be paid by foreign countries. In reality, importers – American companies – pay the tariffs, and the money goes to the US treasury. These companies, in turn, typically pass on higher costs to customers in the form of higher prices. That’s why economists say consumers typically foot the bill for tariffs.

Still, tariffs can hurt foreign countries by making their products more expensive and harder to sell abroad. Yang Zhou, an economist at Fudan University in Shanghai, found in a study that Trump’s tariffs on Chinese goods did more than three times as much damage to the Chinese economy than to the US economy.

The tariffs are primarily intended to protect domestic industry

By raising import prices, tariffs can protect domestic producers. They can also be used to punish foreign countries for using unfair trade practices, such as subsidizing exporters or dumping products at unfairly low prices.

Before the introduction of the federal income tax in 1913, tariffs were a major contributor to government revenues. According to Douglas Irwin, an economist at Dartmouth College who has studied the history of trade policy, from 1790 to 1860, tariffs accounted for 90% of federal revenues.

Tariffs fell out of favor as world trade increased after World War II. The government needed much larger revenue streams to finance its operations.

The government is expected to collect $81.4 billion in tariffs and fees in the fiscal year ended Sept. 30. That’s a pittance compared to the $2.5 trillion expected to come from personal income taxes and the $1.7 trillion from Social Security and Medicare taxes.

Nevertheless, Trump wants to pursue a budget policy similar to that of the 19th century.

He argued that tariffs on agricultural imports could lower food prices, helping American farmers. In fact, tariffs on imported food products would almost certainly increase grocery prices, limiting choice for consumers and competition for American producers.

Tariffs can also be used to pressure other countries on issues that may or may not be trade-related. In 2019, for example, Trump used the threat of tariffs as leverage to persuade Mexico to crack down on waves of Central American migrants crossing into Mexican territory on their way to 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 threatens:

“We will charge you 100% of the rate. And suddenly the president, prime minister, dictator, or whoever the hell is running the country, says to me, “Sir, we are not going to war.” “

Economists generally view tariffs as self-defeating

Tariffs increase costs for businesses and consumers who rely on imports. They may also provoke retaliation.

For example, the European Union responded with Trump’s tariffs on steel and aluminum, taxing American products from bourbon to Harley-Davidson motorcycles. China similarly responded to Trump’s trade war by imposing tariffs on American goods, including soybeans and pork, in a calculated effort to harm its rural supporters.

A study by economists from the Massachusetts Institute of Technology, the University of Zurich, Harvard and the World Bank found that Trump’s tariffs have failed to bring jobs back to America’s heartland. The study found that the tariffs “did neither increase nor decrease U.S. employment” where they were intended to protect jobs.

For example, despite Trump imposing taxes on imported steel in 2018, U.S. steel jobs barely budged: They remained at about 140,000. By comparison, Walmart alone employs 1.6 million people in the United States.

Worse still, the study found that retaliatory taxes imposed by China and other countries on American goods had a “negative impact on employment,” especially of farmers. These retaliatory tariffs were only partially offset by the billions in government aid that Trump awarded to farmers. Trump’s tariffs also hurt companies that relied on targeted imports.

But if Trump’s trade war failed as a policy, it succeeded as a policy. The survey found that support for Trump and Republican congressional candidates increased in areas most vulnerable to import tariffs – the industrial Midwest and southern manufacturing-intensive states such as North Carolina and Tennessee.