With President-elect Donald Trump about to take up the mantle of office, he again has become in the news for his strident stand on tariffs. The wide-ranging tariffs he has framed on imports from Mexico, Canada, and China have elicited unparalleled debate among economists and policymakers, as well as the general public as also written here in detail, Trump threatens to impose sweeping new tariffs on Mexico, Canada and China – These are the items that will suffer the most when he…. This article examines what reasons Trump can provide for such tariffs and what experts feel regarding the probable impact on the US economy.
Protecting American jobs and manufacturing
Perhaps the biggest selling point of tariffs to Trump is theoretical preservation and protection of American manufacturing jobs. His thinking goes that if imports are assessed duties, U.S. companies will face far less foreign competition and hence have more reason to maintain or expand their American footprint. Indeed, in the first term of his presidency, there were reports of specific industries benefiting through tariff-caused job gains. One cited case was how tariffs on washing machines created around 1,800 new positions at Whirlpool and other manufacturers.
But experts say the big picture on tariffs isn’t quite as rosy as Trump describes it. The Federal Reserve reported that, though some jobs might indeed have added in discrete industries, the overall manufacturing jobs actually fell during Trump’s first term-from about 12.4 million to 12.2 million workers. Economists say factors like automation and the way global supply chains work have much more to do with the number of jobs than tariffs do.
Encouraging domestic investment
He also believes the heavy tariff will serve as the incentive for foreign firms to open factories on U.S. soil with the express purpose of evading the import duties. He says, “the higher the tariff, the better the chances” companies will invest in U.S. based operations. While the theory of these ideas is good, experts caution that shifting factory locations are very complicated and influenced by several factors beyond just tariff, labor cost, regulatory environments, and supply chain logistics.
For instance, while some would consider leaving China for the U.S., others would only relocate to countries such as Vietnam and Cambodia as a means of dodging the tariff without returning jobs to America. This would imply, therefore, that as much as Trump’s strategy might create new domestic investments, its effects on the actual creation of jobs in the United States would be very minimal.
Generating federal revenue
Another point taken by Trump in support of the tariff issue is the enormous federal revenues that may be raked in by tariffs: His administration took in close to $80 billion in tariffs during his first term. Estimates are that his threatened 10% tariff on all imports would gross as much as $2 trillion over a decade. Theoretically, this revenue could be used to pay for tax cuts or other projects dear to the President’s heart.
But they also note it’s U.S. consumer and business money they’re getting, via the tariffs applied to U.S. imports of goods from abroad. Those will ultimately be transferred to consumers when imports get too expensive for retailers to absorb higher costs of goods, everything from electronics to clothing items.
Addressing trade imbalances
On the other hand, Trump has used his tariff policy as a tool for redressing trade imbalances, particularly with nations like China and Mexico. He has argued that such countries adopt unfair trading practices that harm American workers and companies. He considers the tariffs a leveling of the playing field, with the ultimate aim of getting better negotiating terms toward favorable trade agreements.
Yet to many economists, the practice is reductionist and even destructive. They say across-the-board tariffs would surely provoke retaliation from trading partners, possibly escalating into an all-out trade war and, in the end, harming American consumers and businesses. For instance, industries like agriculture, among others, stand to be badly hurt if countries were to retaliate with their own tariffs against U.S. exports.
Concerns about inflation
Some experts fear that one result of Trump’s threatened tariffs will be highly inflationary: with a rise in import prices due to the imposition of new duties, consumer goods will increase in price, from electronics items down to processed foodstuffs. Such analysts consider that it will result in reduced household purchasing power and multi-billion-dollar increases in prices across wide categories of items.
Economists at High Frequency Economics estimated that the immediate impact of the tariffs likely will be higher costs for American families, not economic gain, absent alternatives for the afflicted goods and services.
Read more: Why is Thanksgiving celebrated on Thursday in the United States? Is it a federal holiday?
Read more: Where will it snow in the United States on Thanksgiving Day? The weather forecast with the states that will have snow on November 28th
