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Trump’s Tariff Threats [1]

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Date: 2024-09-09  

During a September 7 rally in Wisconsin, GOP presidential nominee Donald Trump threatened to slap 100 percent tariffs on goods from countries that shun the U.S. dollar. Trump promised that he would push to keep the U.S. dollar’s status as the global reserve currency. This is not Trump’s first tariff threat. In previous campaign speeches he has threatened a 60 percent tariff on Chinese goods in his ongoing trade tiff with the PRC. This latest threat appears to be his response to moves by certain countries that have called for trade to be conducted in currencies other than the U.S. dollar.

While such bellicose pronouncements are often greeted with cheers and applause from Trump’s hard core supporters, and if elected he has the authority to put tariffs in place much as he did during his first term in office (2016-2020), they fail to reflect the realities of the global economic situation. They show that Trump is either ignorant of how economies work, or he is deliberately blowing smoke to rile his base and depending upon their ignorance of how tariffs actually work.

According to Hao Hong, chief economist for GROW Investment Group, for example, imposing 100 percent tariffs on the Chinese export sector would be a losing proposition for both China and the United States. This would raise the rate of inflation in the U.S., and shift much of the U.S trade deficit to allies like Mexico and Canada.

This is because of how tariffs work, something that Trump constantly misstates or fails to understand.

Tariffs are essentially taxes on imported goods levied at the border. They are paid by the importer, not the exporting country. They result in higher prices on the imported goods, price increases that are passed on to consumers, and often result in less demand. Historically, tariffs have been used to protect or promote domestic industries and increase revenue. In practice, though, the increased prices resulting from tariffs often reduce GDP in the short term and any industries protected tend to become less efficient and innovative because of the lack of competition. In today’s global markets, if tariffs reduce the inflow of goods from China they’re likely to be imported from other foreign destinations, in this case Canada and Mexico. Tariffs also increase costs to domestic industries that rely on international supply chains for the goods that are essential to their production.

Tariffs as a trade war tool as threatened by Trump pose another threat—retaliation. The tit for tat creates a lose-lose situation for all concerned, with the consumer the ultimate victim. For example, when Trump enacted tariffs on European steel and aluminum in his first administration, the EU retaliated with tariffs on bourbon, motorcycles, and orange juice among other goods, specifically targeting industries in those states whose leaders supported Trump’s trade policies, states, by the way, with some of the highest percentages of lower income people who are the most hurt by increased prices.

Trump is relying on the fact that most of the people cheering when he says such things, are unaware of the consequences of such actions. Nor, apparently, does he seem to care about their suffering if and when he makes good on his threat.

This is but one of many campaign ‘promises’ we’re likely to hear between now and November. When you walk into the voting booth, before you cast your ballot, ask yourself – am I voting based on an accurate understanding of what each candidate has proposed? Being accurately informed is the only way to adequately answer that question.

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