Former President Trump has argued that he can make foreign companies and their governments pay taxes levied by the United States. Customs Duties Regarding products exported to the United States
This idea is absurd. If tariffs worked this way, governments around the world would reduce taxes on their own citizens and impose tariffs on foreigners. National Child Welfare ProgrammeThat's something President Trump may have been trying to hint at in his recent speech.
Far from gleefully stripping billions of dollars in revenue from foreign trading partners, President Trump's tariff plan is an extreme execution of self-inflicted economic harm, expanding on damage caused by previous tariffs on thousands of trade items and all of America's trading partners.
The “billions of dollars” that will supposedly flow to the Treasury will come not from foreigners, but from American consumers: it will be a new national sales tax, levied on American citizens and collected on all goods imported into the United States.
President Trump's proposed comprehensive 20% customs duty (China is 60 percent) is collected at U.S. ports of entry by U.S. Customs and Border Protection and must be paid by the importer before the product clears customs and is delivered to the U.S. market. No customs invoice is sent to the foreign producer for products exported to the United States.
At this point, the tariffs become an added cost for U.S. distributors that must be paid by domestic customers who want to buy their products. Economists who studied the tariffs of the first term of the Trump administration found that in most cases, the final U.S. price of imported products increased by the full amount of the tariff. Meanwhile, U.S. companies have typically raised the prices of their own products because the tariffs reduced import competition.
Higher prices make consumers poorer. For example, President Trump's 2018 washing machine tariffs increased the domestic price of the product by about 12 percent, or about $90 per unitRising prices had a major negative impact on poor families who had to devote a larger share of their income to consumption.
Moreover, the extra windfall profits that tariffs generate for American producers will not force them to upgrade their products or modernize their factories, making them less competitive. As American consumers become poorer and American production becomes less efficient, the country's GDP will fall.
Like many protectionists, Trump still argues that the US benefits from tariffs because they create more jobs at home, but the jobs “saved” in protected industries will be offset by a variety of factors.
Some of our import customers are local companies that source raw materials from overseas. Tariffs on raw materials will increase production costs and make final products less competitive, especially when suppliers must compete in overseas markets that are not subject to the same raw material tariffs.
The loss of export business for these companies often means American workers lose their jobs. Overall, President Trump's 2018 tariffs cost more American manufacturing jobs than they saved.
Foreign retaliation would increase unemployment. If upheld by the court, Trump's tariffs would violate international trade rules and treaty-based agreements. Foreign countries would impose retaliatory tariffs of their own, as they did with the 2018 Trump tariffs. U.S. exports would decline, and so would jobs in those sectors. Trump's new tariff proposals would significantly expand retaliation, as a full-scale trade war would spread to virtually all trade items and trading partners.
As President Trump seeks to upend and disrupt the trade system with unilateral tariffs, U.S. and global business investment that depends on stable trade policy will decline. Like a pandemic, President Trump's trade war will spread in a vicious cycle of market closures, investment collapse, and retaliation, damaging the economies of all nations.
The likely outcome would be higher prices, lower GDP and a recession at home and abroad, or worse.
President Trump's new tariffs are the most extreme protectionist proposal since the Great Depression, a regressive sales tax that would make America less competitive and lower our standard of living. This would be an economic disaster.
Kent Jones is Professor Emeritus at Babson College.
