As part of his 2024 presidential campaign, former President Donald Trump has proposed a new 10 percent tariff on virtually all goods imported into the United States to discourage foreign competition and boost domestic production and manufacturing.
Tariffs are taxes placed on imported goods. They act as a double-edged sword: generating revenue for the government and protecting domestic industries by making foreign products more expensive for consumers.
Trump’s proposed 10 percent across-the-board tariff on imports has raised concerns about its potential impact on American consumers and manufacturing, especially when compared to President Joe Biden’s approach.
Criticism of the policy has been bipartisan.
The Tax Foundation think tank called Trump’s plan a more than $300 billion a year tax increase on American consumers that would trigger retaliatory tax increases on U.S. exports by international trade partners.
China implemented retaliatory tariffs equivalent to the $34 billion tariff imposed on it by the United States in July 2018, when Trump announced his “America First” economic policy to reduce the trade deficit by shifting American trade policy from multilateral free trade agreements to bilateral trade deals.
China, Canada, Mexico, India, and the European Union responded to with retaliatory tariffs and prices of U.S. intermediate goods rose by 10% to 30%.
National Economic Council Director Larry Kudlow said that Trump’s tariffs had no direct benefits on the economy and a March 2018 Reuters survey showed 80% of economists believed the tariffs on steel and aluminum imports harmed the U.S.
The American Action Forum estimated, based on the assumption that trading partners would retaliate, that the policy would result in a 0.31% ($62 billion) decrease to U.S. GDP, making consumers worse off and decreasing U.S. welfare by $123.3 billion.
“First of all, they can’t model that because they don’t really understand what the second-and third-order effects are, and more importantly, they don’t grasp that Trump isn’t talking about a 10% tariff just because it’s a 10% tariff,” said Michael Every, global strategist at Rabobank. “He’s talking about structurally breaking the global system by hook or by crook to basically reindustrialize the U.S. in a neo-Hamiltonian manner, which is how the U.S. originally industrialized, putting up a barrier between it and the rest of the world so it’s cheap to produce in America and more expensive to produce everywhere else if you’re importing into America.”
An analysis by the Center for American Progress Action Fund sheds light on the potential consequences of Trump’s tariff plan, highlighting its adverse effects on household finances and its limited efficacy in boosting domestic manufacturing.
According to the analysis, Trump’s proposed tariff would result in approximately a $1,500 annual tax increase for the typical American household.
This increase would encompass various essential expenses, including food, prescription drugs, and oil products, significantly burdening families across the nation. Despite its substantial impact on consumer costs, the tariff is unlikely to generate significant benefits for U.S. manufacturing and job creation.
Brendan Duke, senior director for Economic Policy at CAP Action, criticized Trump’s tariff proposal, stating, “Donald Trump’s tariffs would crush America’s middle class by increasing the cost of everything, from food, fuel, clothing, and more, while failing to boost American manufacturing.”
Duke contrasted the stark difference between Trump’s approach and President Joe Biden’s strategies, which prioritize tax cuts for working families and strategic investments in American manufacturing.
Trump’s tariff proposal has been a cornerstone of his economic agenda, aimed at addressing trade imbalances and revitalizing U.S. manufacturing.
However, critics argue that the indiscriminate nature of the tariff, applying to all imports regardless of origin, could have detrimental consequences for American consumers and businesses.
Contrary to Trump’s assertions that the tariff would primarily target China and foreign companies, economists warn that the burden of the tariff would ultimately fall on U.S. importers and consumers. The analysis highlights the potential inflationary pressures resulting from the tariff, with estimates suggesting a 1 percentage point increase in inflation.
In contrast, the Biden administration’s approach to manufacturing revitalization has focused on targeted trade enforcement and strategic investments. Biden’s policies have already led to significant private sector investment in U.S. manufacturing, with a notable surge in construction spending in the sector.
Critics argue that Trump’s reliance on across-the-board tariffs lacks the strategic vision necessary to address complex trade issues effectively. Instead, they advocate for comprehensive approaches that prioritize innovation, investment, and international cooperation.
Over a thousand economists warned Trump that his “economic protectionism” and tough rhetoric on trade threatens to repeat the mistakes made in the 1930s, that plunged the world into the Great Depression.
The letter coordinated by Bryan Riley, director of the National Taxpayers Union’s Free Trade Initiative, was signed by Nobel laureates including lvin Roth, Richard Thaler, Oliver Hart, Roger Myerson and James Heckman as well as Jason Furman, former chair of the Council of Economic Advisors to Barack Obama, and James Miller, budget director to Ronald Reagan, who said, “In 1930, 1,028 economists urged Congress to reject the protectionist Smoot-Hawley Tariff Act,” which was one of the triggers for the Great Depression.
That message was signed by 1,140 economists, including 14 Nobel prize winners, after Trump imposed tariffs on steel and aluminium imports during his first term in the White House.