President Trump has paused several of his most imminent tariffs for 90 days. The stock market initially showed some recovery following this news, but the S&P 500 remains about 5% lower than the “liberation date” position.
Trump’s 10% global tariff and the special 25% tariffs on steel, aluminum, and automobiles are still enforced, while he has increased tariffs on Chinese goods by 145%. At the start of his presidency in January, the average tariff rate in the US was 2.2%, but with the new tariffs, it now exceeds 24%, over ten times the original rate.
Trump’s tariffs signify his awkward efforts to replace the global trading system with one rooted in his forceful and aggressive trade wars, rather than fostering stability and thoughtful discussion.
His pointless tariff events were met with such widespread derision that no one in his administration is eager to admit their involvement in creating them. International trade partners view these calculations as an obvious overstatement of actual tariffs, crafted to enable Trump to extract more concessions related to trade and otherwise.
Trump’s reckless attempts to reshape the global economy have likewise led to turmoil in the bond market. While he may think he can foster a market insulated from globalization in US manufacturing, he cannot achieve the same in US financial markets.
The dependability of US Treasury bonds, which for years have been a cornerstone of international confidence in the US economy, is now in doubt, potentially undermining the dollar and driving up interest rates. How can the US economy be considered stable and reliable when the president wields absolute power over tariff policies, perceives all foreign nations as adversaries, and initiates a trade war unilaterally?
Trump now asserts that he will individually negotiate with 75 countries in the forthcoming 90 days. However, absent their unquestioning compliance with his erratic demands, he will likely escalate tariffs further. While he positions himself as tough on China by raising tariffs, this translates to a 145% price increase for US consumers on Chinese imports.
China stands as the top exporter of household appliances and 70% of the world’s toys. Expect many gift prices to see a 145% hike in the US come December.
Despite the temporary pause, Trump remains committed to his grand vision of reviving US manufacturing with permanent tariffs and reinvigorating all automobile, steel, and aluminum production.
Achieving this ambitious goal will take longer than two years, and risky investments may amount to trillions of dollars. There isn’t an available US workforce ready for labor-intensive roles in textiles, footwear, and assembly operations.
US innovation suffers due to diminished competition. Domestic and international investors are wary of the US market, mainly because of the uncertainty stemming from Trump’s erratic policies.
Trump’s fixation on tariffs increasingly resembles a patriarch obsessed with gambling, helplessly watching as he squanders money, property, and homes on high-stakes poker bets. He is wagering on US corporations that could collapse due to the financial strain on American families’ incomes, purchasing power, and retirement savings that arise from tariffs.
Trump also keeps insisting that tariffs are paid by foreign exporters, implying that US income taxes could thus be eliminated. However, anyone doubting that these duties are paid by US importers and passed onto US consumers can easily verify through customs receipts issued to a US customs broker engaged by an American importer.
This principle also applies to individuals bringing items through US customs checkpoints. Don’t assume that the foreign retailer you bought from will settle the duties or refund you for them. The responsibility falls on you.
Trump is eager for tariff revenue while obscuring the fact that it effectively taxes our consumers. Typically, such a substantial tax increase would necessitate congressional deliberation and legislation, which Trump seems to be avoiding to sidestep backlash against tax hikes.
This is why he resorts to imposing tariffs on items like coffee and bananas along with other products that previously came with US tax exemptions. He seeks extra customs tax income at the cost to consumers.
Trump asserts that tariffs won’t increase prices for domestically manufactured goods and explicitly states that he “doesn’t mind” if import prices rise as consumers turn to US alternatives. However, tariffs diminish competition, shift demand to comparable domestic goods, and lead producers to inflate prices. Consumers end up paying more either way.
Is there a possible resolution to this predicament? By establishing zero tariffs across all trading partners, Trump could alleviate the “reciprocity” concern or utilize US trade laws to confront unfair trade behaviors among specific nations.
Another path to averted disaster is for Congress to enact legislation to regain tariff oversight, as detailed in Article 1 of the Constitution.
Congress has delegated emergency authority to the President through the International Emergency Economic Powers Act of 1977. Nonetheless, this provision requires prior consultation with Congress, and US private enterprises have indicated they would challenge Trump’s tariffs due to noncompliance with it.
In the interim, the repercussions of Trump’s tariff blunders will soon be felt by US consumers and businesses. Contrary to his earlier claims of tariffs being “fun” to observe, and that trade wars are “easy to win,” the severe price hikes threaten everything from food and automobiles to new housing for consumers.
And don’t overlook the likelihood of rising costs for holiday gifts.
Kent Jones is Professor Emeritus of Economics at Babson University.
