Republican presidential nominee Donald Trump promises to revive US industry and reduce prices, depending on tariffs to generate revenue and put pressure on other countries — but the reality is more complicated.
Economists fear that his plans might boost consumer prices and disrupt global commerce, with uncertain benefits for US manufacturing.
The idea is that tariffs will increase income by billions of dollars and target countries like China for “ripping us off,” while also encouraging firms to return production to the United States.
“Other countries are going to finally, after 75 years, pay us back for all that we’ve done for the world,” Trump said in his September debate with Democratic nominee Kamala Harris.
The former president has vowed a 10 percent to 20 percent across-the-board tariff on imports and a 60 percent rate on Chinese goods — more recently threatening a 200 percent levy on automobiles made in Mexico.
“To me ‘tariff’ is a very beautiful word,” Trump said in a Fox News interview broadcast Sunday. “It’s a word that’s going to make our country rich again.”
“Without tariffs, we have a busted country,” he added.
Despite what Trump often asserts, it is US businesses — not foreign governments — that pay import taxes on overseas purchases when there are tariffs on such goods, and they can pass on the higher costs, which could add to inflation.
Alongside his tariff plans, Trump wants to extend expiring tax cuts and lower corporate income tax further.
But proposed tariffs could counteract the benefits from his tax policy “while falling short of offsetting the tax revenue losses,” said the Tax Foundation think tank.
Higher costs
The Peterson Institute for International Economics (PIIE) predicts that if Trump imposes a 10% universal tariff and other nations retaliate, US inflation will jump 1.3 percentage points above the baseline next year.
Sharp tariffs on Chinese imports would also drive inflation, it claimed.
Others, such as Bernard Yaros of Oxford Economics, believe that a Trump presidency would raise inflation by 0.6 percentage points at its peak.
Previously, firms bore the brunt of the pricing increases for imported components, according to Kyle Handley, a UC San Diego professor.
He also pointed out: “If they do an across-the-board tariff of 10 percent to 20 percent, there’s no way we’re not going to see that on store shelves.”
And it is unlikely that manufacturing will return to the United States soon.
“We haven’t made TVs in the US in decades,” Handley said, adding that American factories aren’t producing at the volume required to meet demand either.
In his Fox appearance, Trump again claimed that hiking tariffs would result in higher consumer prices.
However, Handley thinks that the supply chain frictions suffered by exporters amounted to a two to four percent tariff damage — and companies told AFP that they had to pass on some expenses.
According to a 2019 research published in the Journal of Economic Perspectives, by the end of 2018, import tariffs were costing US consumers and importers an additional $3.2 billion per month in tax costs.
Rerouting trade
According to Oxford Economics, Trump’s tariff measures may reduce bilateral trade between the United States and China by 70 percent, redirecting or eliminating hundreds of billions of dollars.
The advice group added that US trade volumes could fall by 10% as the focus shifts to North America and other free trade agreement partners.
While the additional taxes would generate $500 billion in revenue year, diverted trade from China might eventually reduce this total to $200 billion, according to Yaros.
Other measures, such as withdrawing China’s “permanent normal trade relations” status, which shields it from different US duties, may raise inflation by 0.4 percentage points in 2025, according to the PIIE.
Although Trump wants a “reciprocal trade act” in which “countries that make us pay a tax to do business with them will be charged the same tax when they send their product into the United States,” Yaros believes this is unlikely due to the need for bipartisan support in Congress.
Food, energy
Trump frequently claims to decrease inflation, a major voter issue, saying he will cut energy bills in half within a year.
Analysts believe this relates to further liberalization in the domestic oil and gas sector.
However, Yaros voiced skepticism that this will “unleash significantly greater production” because it is dependent on major energy companies, who have shareholders to answer to.
While Trump wants to reduce food costs by allowing fewer foreign agricultural products to enter the US, analysts warn that import obstacles may spark retaliation.
This could hurt US farmers who export heavily.