Trump has promised aggressive tariffs will create jobs and bring down taxes — economists aren’t so sure.
Are you sick of hearing about tariffs yet? The president-elect has repeatedly promised that tariffs will be a key part of his plan to reshape the American economy. Donald Trump’s even gone so far as to call himself “Tariff Man,” illustrating his devotion to the controversial economic tool.
In his first term, he imposed stiff tariffs, to mixed results. During his second, he wants to levy them even more aggressively, promising that they’ll create American jobs, raise money to fund tax cuts, and stimulate the economy. Economists, however, aren’t so sure about that. We took a deep dive into Trump’s tariffs 2.0 plan and why some experts are saying it’d do much more harm than good.
What are tariffs?
First, the basics: A tariff is a tax placed on goods that cross international borders. Most tariffs are import tariffs, which is a tax on goods brought into a country. Contrary to popular belief, tariffs aren’t paid by exporters, but rather by the business importing the products.
Tariffs are typically used either to generate revenue for the government or to protect domestic industries by increasing the price of a foreign good, giving American producers an edge.
How has Trump used tariffs in the past?
During his first term, Trump imposed tariffs on solar panels, washing machines, steel, aluminum, and a large range of products from China.
“One of the things we learned from the first round of tariffs is that those taxes are not absorbed by foreign exporters,” Douglas A. Irwin, Ph.D., an economics professor at Dartmouth, tells us. “They’re passed on and paid by the final consumers, who are bearing the brunt of that 10 percent or 20 percent tariff increase.”
Look at the price of washing machines, for example. After Trump’s 2018 tariffs, the cost of both washers and dryers rose 10 percent, according to Felix Tintelnot, Ph.D., an associate professor of economics at Duke. Those increases were seen across the board, even among domestic producers who weren’t subjected to the tax, but took advantage and raised their prices anyway.
The other consequence is that several nations, including the E.U. and China, retaliated, hitting the U.S. with tariffs of their own. Historically, American farm exports have been targeted, Dr. Irwin says, and farmers were hit hard a few years back. If Trump were to hike tariffs once more, Dr. Irwin says he’d expect wheat and soybean farmers and other agricultural exporters will feel the pain again, along with companies like Boeing.
“We export a lot of aircraft; countries could shift and start buying Airbus instead of Boeing to retaliate,” he says. “U.S. exports will generally be hurt.”
How will Trump use tariffs in his second term?
The president-elect is mulling much higher tariffs this time around. He’s floated a universal tariff of 10 to 20 percent on all imports, and tariffs of 60 to 100 percent on goods from China. Some experts believe that Trump’s main goal is to use the threat of tariffs as leverage in trade talks. But what’s certain is that he wouldn’t be able to fulfill one of his campaign promises — that is, to use the revenue he’d generate from the tariffs to eliminate the federal income tax. Several economists, including both Dr. Irwin and Dr. Tintelnot, say that’s mathematically impossible.
One study conducted by the Tax Foundation even found that it may actually have the knock-off effect of raising taxes. They estimate that the tariffs would end up shrinking the U.S. economy and that a 10 percent universal tariff would result in $1,253 more in taxes per household on average — and a 20 percent tariff would raise taxes by $2,045 on average.
Throughout his campaign Trump has also promised that these tariffs will spur a “manufacturing renaissance” in the U.S. Most economists agree that it could give some manufacturers a leg up, but it’s certainly a double-edged sword. Although they’d have less competition, they’d also be exporting less because of potential retaliatory tariffs, and they may have to deal with inflation too.
Will consumer goods become more expensive?
It’s likely. The National Retail Federation, a retail trade group, says Trump’s tariffs would reduce American consumers’ spending power by $46 billion to $78 billion a year.
They believe that six products would see the highest increases: apparel, toys, furniture, household appliances, footwear, and travel goods. According to their report, if a 10 percent universal tariff and 60 percent tariff on Chinese goods were implemented, the price of toys would climb 36.3 percent, household appliance costs would rise 19.4 percent, and footwear would cost 18.1 percent more.
They estimate that a $1,500 couch, for example, would cost between $96 and $143 more and that a $650 refrigerator would become $126 to $202 more expensive.
Groceries too, which have already become much more expensive since the pandemic, could get even pricier. According to a report from Third Way, a left-leaning think tank, the grocery bill for the typical American family could swell by almost $200 next year.
But the effects won’t be constrained to just these items. Supply chains and production processes are incredibly complex, and the effects of tariffs could ripple across the economy in unexpected ways, impacting a broad spectrum of goods. Although the bottom line is that it’ll likely “hurt consumers through higher prices and businesses by raising their costs,” Dr. Irwin says.
“There are always going to be winners and losers, but it’s going to be really hard to find winners in a trade war,” he tells us.
