Unlike traditional tariff costs that focus on market prices, production, and employment, Trump’s tariffs are unpredictable, making it difficult to gauge their economic impact. The big difference is that it is unknown which countries and industries will be affected.
Trump’s tariffs can change frequently, and he has the power to adjust the reasons for imposing them freely, creating an atmosphere of uncertainty.
The global trading system, established after World War II, promotes predictability by binding countries to negotiate tariffs and allows for rules of non-discrimination.
This system also provides custom restraint, enabling industries to advance their trade strategies without fear of arbitrary tariff increases.
However, Trump’s tariffs lack transparency, causing companies to hesitate to invest in trade.
With over 13,000 US imports from 200 trading partners, and 2.6 million tariff lines, foreign exporters cannot predict tariffs or how they may change in the future.
Trump has shown little regard for the “mutual” tariff scheme, as seen in the US-Mexico-Canada Agreement.
He has also threatened to increase tariffs, even on countries with lower tariffs, and reserves the right to set “modified” tariffs on any product for any reason he deems appropriate.
Trump’s unpredictability is reinforced by his use of trade and non-trade complaints as justification for tariffs, such as immigration and drug issues.
This unpredictability is detrimental to domestic and foreign investors, who prefer stability and predictability in their investments.
Economists have estimated that uncertainty caused by Trump’s tariffs has led to a loss of $40 billion in investment annually, with potential losses being even higher.
Finally, Trump’s belief that foreigners will pay tariffs, resulting in a “tax cut” for Americans, is a misconception, as tariffs can harm the economy and undermine the country’s manufacturing advantage.
Kent Jones, Professor Emeritus of Economics at Babson University, is the author of this article.
