Increased tariffs on imports from China and other trading partners are part of President-elect Donald Trump’s economic plan when he takes office in January. Although he claims his protectionist trade policies will bring jobs back to the US, Trump’s tariffs will come at a big cost to consumers and the economy as a whole.
“We’re going to bring the companies back,” Trump said October campaign event at the Economic Club of Chicago. “We’re going to lower taxes for companies that are going to make their products in the United States. And we’re going to protect those companies with stronger tariffs.”
The trade proposal is an extension of Trump’s tariffs imposed against China In his first term (which The Biden administration continues) Trump’s proposed tariffs would likely have a broader and more negative impact on the economy. They will almost certainly increase prices immediately. They could also trigger a trade war in which the US and its trading partners enact tit-for-tat policies to harm each other’s economies.
Trump made the threat on Monday evening Imposing 25 percent tariffs on imports from Mexico and Canada Until drugs, especially fentanyl and all illegal aliens stop this invasion of our country! (The reality of Fentanyl trafficking (And the migrant flow is more complicated than Trump’s post suggests.) Trump has previously proposed tariffs of up to 60 percent on imports from China and smaller tariffs of 10 to 20 percent on imports from other trading partners, such as the European Union.
It is worth noting that Trump makes many threats and does not follow through on them. And a post on Truth Social does not, in any way, constitute a formal change in US policy.
But Trump has followed through on some threats, and U.S. trading partners are taking him seriously. The European Union is already planning to impose retaliatory import taxes if Trump implements his proposed tariffs.
According to economists, Trump’s tariffs, if implemented, are a recipe for inflation. Right now, importers are relying on the availability of cheap, foreign-made products, especially from China. If they can’t find an equally cheap, high-quality alternative, prices will rise. Any policies to mitigate its effects may take years to come into effect.
In a second term, Trump and his team appear ready to use tariffs as a threat, regardless of the consequences for US consumers and businesses.
How tariffs work in the real world
At their core, tariffs are “a fairly simple idea,” Dean Baker, senior economist at the Center for Economic and Policy Research, told Vox. “Duty is a tax on imports. What happens is, when the goods arrive at the port, we collect tax on them.”
But that tax isn’t levied against the companies or governments that export them: it’s paid by the U.S. companies that import the items.
This tax is either absorbed by importers or, more likely, passed on to consumers in the form of higher prices. Because of this dynamic, more tariffs on Chinese imports could have big implications for consumers, some say US companies depend on Chinese products.
“When you impose these kinds of import tariffs from China, many companies such as Walmart, Home Depot and [others] — they import a lot of goods from China, so they pay higher prices because they have to pay tariffs,” Christopher Tang, faculty director of the Center for Global Management at UCLA’s Anderson School of Business, told Vox. “So as a result, they have no choice but to pass on some of the cost increase to consumers. This will trigger higher prices.”
Sina Golara, assistant professor of supply chain and operations management at Georgia State University, told Vox that importers can absorb costs, but that’s a poor long-term strategy because it “likely leads to layoffs and a lack of competitiveness going forward.” And exporters may pay some of the price, but that’s because importers will try and find other, cheaper suppliers – if they can.
There is still uncertainty about how this will all play out
The tariffs that Trump has outlined could cause two major problems.
First, they can increase the price of the product. At present the demand for imported goods is high; According to the US Trade RepresentativeNo other country imports as much as the United States. That demand is roughly met by a steady supply of goods 15 percent Among which came from China.
Higher tariffs, especially in China, will disrupt supply and drive up prices if demand remains the same. The price may increase due to what is known as Seller inflationWhere companies take advantage of economic shocks (like new tariff packages) to artificially raise product prices.
Importers may try to change their supply chain, finding suppliers in countries with low (or no) tariffs on their exports to keep prices under control; This comes shortly after Trump’s initial imposition of tariffs on China. In theory, diversifying the US supply chain is a good thing: a diversified supply chain makes it less vulnerable to shocks and potentially improves other economies as well. However, finding cheaper alternatives to products Americans demand is no easy task.
“If it were easy to find a good producer, American companies would already be building relationships with them,” Golra said. In many cases, from electronics to acetaminophen, he told Vox, China is “their best option, maybe the cheapest or the most suitable, and even if they’re able to find someone else, it’s not going to be the same price or have the same quality.” “
What’s more, finding those suppliers, building relationships, and acquiring products at the necessary scale won’t happen immediately; It may take months or years. In the meantime, supplies will continue to be limited and prices high.
A second problem that tariffs could create is retaliatory tariffs, such as the European Union’s planned tariffs on American imports.
“It would be very, very unexpected, very rare [other countries] Nothing has to be done … because they have to show some resistance,” Golra said.
Retaliatory tariffs continue to hurt selective businesses and employees. They make it more expensive for foreign importers to bring US products into other countries. That reduces demand for those products and can mean trouble for the bottom lines — and employees — of businesses that rely on foreign consumers.
Essentially, the tariffs could cause price increases on American imports and exports, which would have ripple effects throughout the global economy.
They will not be able to increase domestic trade as Trump has claimed. A disruption in imports is unlikely to help because there is no way for American firms to quickly and cheaply replace most foreign products with products made in the United States, because that manufacturing capacity no longer exists in the United States. And imposing retaliatory tariffs would shrink the potential market for domestic firms: it would be harder to turn a profit on exports.
We’ve been here before — in Trump’s first term
Trump’s first term pays tribute preview The potential consequences of a trade war and how Trump might respond.
China retaliated during Trump’s first term Imposing tariffs on US exports of certain agricultural products. After farm exports fell sharply, the administration launched a series of programs aimed at subsidizing farmers to protect them from the effects of trade wars.
The trade war shows that Trump may try to use unusual methods to prevent the consequences of his trade policies from reaching consumers and suppliers.
“We should not underestimate Trump’s willingness to take unconventional measures to control inflation if necessary,” Isabella Weber, associate professor of economics at the University of Massachusetts Amherst, told Vox. “If anything, he’s emboldened to come back and come up with measures that pay part of the tariff bill to companies that export to the United States.”
Barring innovative use of economic levers, it seems almost impossible that Trump’s proposed tariffs will not have short- and long-term consequences for ordinary Americans and the global economy.
