President Trump issued a constant stream of tariff threats in his first month of office.
Canada, Mexico and China's tariffs are udges to force countries that are America's biggest trading partners, forcing the US to crack down on drugs and immigration in the flow. While collection of steel, aluminum and copper is a way of protecting domestic industries, which are important for defense, what you drive supports an important foundation for manufacturing. A new system of “mutual” tariffs is envisioned as a way to stop America from “stripping” them to other parts of the world.
These targets are followed by another reason to attack allies and competitors with tariffs. “In the long term, it will make our country a property,” Trump said this month that he signed an executive order on mutual tariffs.
Trump argues that tariffs will impose costs on the United States, and rarely charge the government's costs of large income that can be used to balance tax cuts and spending, as well as the federal budget.
But trade experts point out that tariffs cannot simultaneously achieve all of Trump's stated goals. In fact, many of his purposes are contradictory and weakened with one another.
For example, if Trump's tariffs project products to produce more products in the United States, American consumers would buy fewer imports. As a result, tariffs will result in less government revenue.
Trump's use of tariffs as leverage in international negotiations could also reduce his rationale. If other countries meet his demands to crack down on border crossings, the president is expected to lower the tariff threat if they reduce the flow of drugs or correct other issues that appear to be in question. As a result, additional revenues do not increase and companies have no reason to move production to the US.
“All of these tariffs are internally contradictory,” said Chad Bowun, a senior fellow at the Institute of International Economics, a Washington think tank. “So what's the real priorities? Because all of them can't happen at once.”
Treasury Secretary Scott Bescent said at a confirmation hearing in January that the president was rolling out tariffs for several different reasons. He outlined three main goals: It corrects unfair trade practices, raises revenues, and encourages other countries to negotiate on terms that are favorable to the United States.
Trump's use of tariffs will be destroyed by decades of precedent. The United States had not seen the tariffs proposed in this volume since nearly a century ago when Smoot Holy's customs law raised tariffs on thousands of products, helping historians deepen their Great Repression, said William A. Reinsch, international business chair at the Center for Strategic and International Studies, a think tank in Washington.
For Trump, tariffs have become a versatile tool, Reinsh said.
“It doesn't matter what the crime is. The answer is tariffs,” he said.
Customs duties and taxes
The contradictory rationale behind Trump's tariffs is perhaps most important when it comes to revenue. The president has occasionally come to mind the idea of replacing income taxes with tariffs to fund the government.
Some House Republicans are supporting tariffs as a way to help Trump pay to extend his 2017 tax cut, which is expected to cost $4 trillion over a decade. One of the president's first executive orders called for the creation of an external revenue service to take money from tariffs, an agency that his commerce secretary said should be replaced by the Internal Revenue Service.
The IRS collected $5.1 trillion in taxes last year, and both liberal and conservative economists say it is mathematically impossible to replace the amount with tariffs. The US imported goods worth around $3.3 trillion last year, so the average tariff on all US imports must exceed 150% to cover the hole.
Such a high obligation could significantly raise the prices of imports, encourage Americans to buy less, and reduce income from tariffs.
Bescent acknowledged the dynamic this month in an interview with Larry Kudrow about Fox Business, implying that tariffs are not a reliable source of revenue.
“In theory, tariffs would be a reduction in the ice cube,” Becent said. He said, “I think tariffs are a means of end, and the end is to bring the manufacturing base back to the US.”
Trump said he plans to impose sudden tariffs on Canada and Mexico. He prepared to carry out duties last month before reaching an agreement to delay them, but Trump says he will execute them next week.
Both Canada and Mexico have worked diligently to reach deals on border issues and delay tariffs.
“There is tension between wanting to use tariffs to negotiate, letting other countries lift barriers, and having us lift our barriers, and wanting to generate revenue on tariffs,” says Erica York, a tax analyst who generally favors low taxes. “If revenue is required, some customs duties must be in place forever.”
Trump's argument about using tariffs as a negotiation tool also seems to have caused confusion as to whether his ultimate goal is to raise or lower tariffs.
Free traders within the Republican Party seem to be tempted by Trump's use of tariffs to open up international markets rather than shutting down tariffs.
Economic Goals
There is also a potential contradiction between Trump's tariff plans and his goal of igniting the economic boom of raising American jobs, increasing growth and keeping prices low.
When he met with the British Prime Minister on Thursday, Trump praised the tariffs for supporting our businesses.
“We're going to bring back the automotive industry,” he said. “We're going to get the tip back. We're going to bring so many things back to our country, drugs and drugs. And what brings us there is tariffs.”
However, many economists have warned that tariffs could have a negative impact on the economy, such as rising consumer prices and slowing growth. Trump claims foreign governments will pay for tariffs, but economic research shows that American consumers often take the brunt of the brunt.
Other economic research found that tariffs have overall reduced US manufacturing jobs as some manufacturers face higher input costs and others pursued retaliatory tariffs.
“People really underestimate the growth effect from tariffs,” said Tom Polcelli, US economist with PGIM bonds. “Taxes are taxes and we feel the impact of taxes.”
Another environment
Trump has experience in the trade war. During his first term, he levied tariffs on Mexican imports, threatening to shut down borders completely, and imposed tariffs on approximately $400 billion in imports from China, solar panels and goods.
That uncertainty has encouraged US businesses to put on hold on expansion plans and cut spending on large investments. Inflation was not a concern for the Federal Reserve given that consumer price growth was consistently below the central bank's 2% target. The outlook for weaker economics and lack of inflation concerns forced the Fed to fall by 0.75 percentage points in 2019.
This time, the US economy is in a solid form, but there are signs that consumers are preparing for such benign outcomes. A survey released by the conference committee this week showed consumer sentiment fell sharply in February as expectations about future inflation rose. A detailed study by the University of Michigan has created a similar photograph in shape.
Porcelli said the combination of higher prices and slower growth is “stave whim.”
Trump ruled out criticism about the economic impact of tariffs.
“Do you have any pain?” he wrote on social media in early February. “Yes, maybe (and maybe not!), but we'll make America great again, and it's all worth the price we have to pay.”
