Yan Liang, PhDKremer Chair, Professor of Economics, Willamette UniversityResearch Associate, Levy EconomicsInstituteNon-Resident Senior Fellow, GlobalDevelopment Policy Center (BU)
Trump’s presidency has ushered in a flurry of tariff announcements, including a10% levy on Chinese importsin addition to existing duties, a25% duty on steel and aluminum imports, and a25% tariff on imports from Canada and Mexico that has been temporarily suspended. Most recently, Trump declared a “reciprocal” tariff scheme and ordered his nominee for commerce secretary Howard Lutnick and his global trade representative Jamieson Greer to determine reciprocal tariffs within 180 days, assessed on a country-by-country basis. Touting “tariff” as “the most beautiful word in the English dictionary,” Trump is adamant in his belief tariffs will bring back a “golden era” for the United States. However, tariffs will only damage the U.S. economy, disrupt the multilateral trading system, and undermine U.S. credibility on the global stage. A newly-released report produced by CGT), properly titled The Tariff Boomerang, brilliantly demonstrates the self-inflicted woes of U.S. tariff policies.
A tariff is, in essence, a regressive tax on an imported product. Trump faithfully believes that tariffs can help him achieve four policy objectives: bring in revenue by foreign countries, reduce the U.S. trade deficit, revive the U.S. manufacturing sector, and leverage concessions from other countries on various non-economic matters. As The Tariff Boomerang colorfully explains, “American politicians love tariffs. They treat it as a magic elixir that solves all their problems. But in reality, it is a poisoned chalice that destroys the very economy they claim to protect.
”First, as The Tariff Boomerang shows, tariffs on imports from China will directly increase the prices of a wide range of consumer goods, including potentially a 45% price increase for gaming laptops, a 40% price increase for consoles, a 31% price increase for monitors, a 10-25% price increase for apparel and sneakers, a 20% price increase for household appliances, and the list goes on. According to the Peterson Institute of International Economics, Trump’s campaign tariff pledge of “10% tariffs on all U.S. imports and 60% on all imports from China,” would cost an average American household an extra of $1,700 per year, even after accounting for the extension of Trump’s Tax and Jobs Act. Worse still, tariffs will cause a “massive shifting of the tax burden from richer taxpayers toward lower-income Americans,” further widening the income and wealth gaps between the rich and the poor.
Second, tariffs have proven to be ineffective in bringing down the overall U.S. trade deficit. Since Trump’s first term, the U.S. trade deficit with China did in fact narrow, but the U.S. overall trade deficit widened even further, jumping from $568.4 billion in 2017 to $918.4 billion in 2024. Meanwhile, China’s overall trade surplus during the same period surged from $419.55 billion to $992 billion. This suggests that while U.S. direct imports from China reduced, the U.S. still relied on imports from other countries like Mexico and Vietnam, which in turn increased their imports from China. Tariffs on Chinese imports will only create trade diversions rather than reduce U.S. reliance on imported goods. The U.S. external balance is largely attributable to its internal saving-investment imbalance, rather than to “unfair” trade practices by trade partners. After all, the U.S. runs a trade deficit with
well over 100 countries; “unfair trade practices” don’t explain the persistent and sizeable trade deficits the U.S. experiences. Furthermore, U.S. net imports are a manifestation of the “exorbitant privilege” the U.S. enjoys, although these economic benefits (and the costs of adjusting to globalization) are not evenly distributed among the socio-economic classes within the United States.
Third, industrial supply chains are highly globalized in today’s economy. The U.S. manufacturing sector relies heavily on intermediate goods imported from China and other countries, an astute observer made clear in The Tariff Boomerang. Tariffs will increase the cost of production, undercut the business bottom line and weaken industrial competitiveness. Rather than creating jobs, tariffscould lead to as many as 177,000 job losses in the U.S., according to a recent Brookings Institute report. The decline of U.S. manufacturing and employment (measured by the shares to GDP and total non-farm employment) began in the late 1970s, long before China’s accession to the WTO, driven by the process of financialization and the post-industrial transition. While Trump boasts that his tariffs will help force foreign direct investment and “bring more jobs back home,” the lack of necessary infrastructure, cost-effective energies, skilled workforce, and holistic and consistent industrial policies will only render Trump’s plan of industrial vitalization through tariffs unviable.
Fourth and finally, while some countries may be bullied into concessions – as in the case of Colombia in accepting deportees, and Mexico and Canada in beefing up border controls – the U.S. unilateral tariffs on both allies and “adversaries” are almost certain to invite retaliation. The Tariff Boomerang illuminates the historical precedent of the disastrous Smoot-Hawley Act and its aftermath, where the U.S. tariff triggered a world-wide trade war and contributed to the U.S. Great Depression. Director-General of the WTO Ngozi Okonjo-Iweala has also voiced a stern warning: “If we have tit-for-tat retaliation, whether it’s a 25% tariff (or) 60% and we go to where we were in the 1930s, we’re going to see double-digit global GDP losses. That’s catastrophic.Everyone will pay.” In addition to the dire economic implications, Trump’s tariff war plainly exposes a U.S. double standard: on the one hand, the U.S. compels other countries to liberalize their economies for trade; while on the other hand, it adopts protectionist policies to “kick away” the ladder. U.S. credibility in upholding a multilateral, rule-based system will thus be severely compromised. Rather than a “golden age,” Trump’s tariff war is more likely to give rise to a “dark age,” leaving the U.S. economy weaker, more unequal and more isolated.
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