Donald Trump dreams of new trade wars

(Washington) In March 2018, a day after slapping heavy tariffs on metal imports, President Donald Trump wrote this on social media: “Trade wars are good and easy to win.”

During his term, Mr. Trump presided over the largest increase in U.S. tariffs since the Great Depression, hitting China, Canada, the European Union, Mexico, India and others. They retaliated with tariffs on American soybeans, orange juice, motorcycles and whiskey. American agricultural exports plummeted, prompting Mr. Trump to provide farmers with $23 billion in compensation.

Today, candidate Trump promises to intensify his trade war. He advocates “universal basic tariffs on most foreign products”, even higher for countries that devalue their currencies. He talks about tariffs of 10% on most imports and tariffs of 60% or more on Chinese products. With these revenues, he proposes to reduce the federal income tax.

“Tariff Man” to the rescue

Mr. Trump, who has styled himself the “Tariff Man,” has long argued that tariffs would help American factories, eliminate the trade deficit and boost jobs.

His first tariffs covered $400 billion in general (steel, solar panels, washing machines) and Chinese (smart watches, chemicals, bicycle helmets, motors) imports. He believed that taxing imports would revive American manufacturing, reduce dependence on foreign products, and help American companies compete with cheap products from China and other countries.

Yes, it reduced imports and boosted U.S. industrial production in some sectors, including steel, semiconductors, and computer equipment. But at a very high cost, which likely wiped out any gains. Studies show that tariffs raised prices for consumers and factories that depend on foreign inputs, while reducing U.S. exports targeted by other countries’ retaliatory measures.

If elected, Mr Trump plans to impose tariffs on imports 10 times more than during his first term, which could trigger a trade war that would drive up prices and plunge the United States into recession, economists warn.

According to David Autor, professor of economics at the Massachusetts Institute of Technology (MIT), these measures would have “a very large and almost instantaneous effect on prices”.

In a recent open letter, 16 Nobel Prize-winning economists wrote that they were “very concerned” about the risks Mr. Trump poses to the economy and the rule of law.

“We believe that a second Trump term would have a negative impact on the United States’ economic position in the world and a destabilizing effect on the domestic U.S. economy,” they wrote.

Mr. Trump and his supporters have a very favorable view of tariffs. They see them as leverage against foreign governments, a remedy for the trade deficit with China and a driver of manufacturing jobs.

“I’m a big believer in tariffs. I think tariffs do two things: economic gain, but also political gain,” Mr. Trump said recently on a podcast.

“Nobel Prizes are worthless”

“The American people don’t need worthless, out-of-touch Nobel Prize winners to tell them which president has put the most money in their pockets,” said Karoline Leavitt, a Trump campaign spokeswoman. “President Trump built the strongest economy in American history, and then, in just three years, Joe Biden’s unchecked spending created the worst inflation crisis in generations.”

Mr. Trump’s tariffs have support in the sectors that benefited from them. In fact, President Biden has maintained tariffs targeting China. He has even added more, notably on electric cars, steel and semiconductors.

But some sectors that suffered from Mr. Trump’s trade wars don’t want to star in this movie again. In the retail and spirits trade, there are fears that a new round of tariffs will reignite tensions, increase their costs and exclude them from crucial export markets.

After Trump’s initial steel and aluminum tariffs, the European Union retaliated with 25% tariffs on American whiskey, and spirits exports to Europe fell 20%. The tariffs on China have increased costs for retailers, who have had to pass the bill on to consumers or cut their margins.

“We need a commercial policy, not just other prices,” argues David French, vice-president of the National Retail Federation. His group, which represents department stores, e-commerce sites and grocery stores, ran a television ad campaign against Trump’s tariffs in 2018.

The favorable or unfavorable impact of tariffs on exports is evident when we look at what has happened to sectors where trade peace has returned under President Biden: in 2021, European tariffs on whiskey were suspended after negotiations.

American whiskey exports to Europe increased from 439 million in 2021 to 705 million in 2023.

A government study found that tariffs on foreign steel and aluminum increased U.S. production of those metals by $2.2 billion in 2021. But U.S. factories that use steel and aluminum to make their products (cars, cans, appliances, etc.) paid more for their raw materials and their output fell by $3.5 billion that same year.

Studies suggest the tariffs have had a mixed effect on employment. In a recent paper, Mr. Autor and other economists found that the combined effect of Mr. Trump’s trade policies and other countries’ retaliatory measures was slightly negative for American jobs, or at best, zero.

When it comes to inflation, studies have estimated that American households have faced higher prices because of the tariffs – anywhere from several hundred dollars to more than $1,000 per year.

This article was published in the New York Times.

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