Trump’s Tariff Fantasies Would Cost the US Dearly

The former president is increasingly selling tariffs as a cure-all. That endangers global trade and the U.S. economy — and puts Trump himself under pressure.

Donald Trump is on a reelection tour. To make it back to the White House, he is promising tax cuts for pretty much everyone in America. In contrast, he is threatening foreign countries and corporations that do not do his bidding with high tariffs.

Familiar Threats, New Goals

It comes as no surprise because Trump used this strategy during his first term in office. In his current campaign, he repeatedly emphasizes that he loves tariffs. However, whereas he imposed relatively targeted tariffs when he was president from 2017 to 2021, he now sees them as an all-purpose tool. Trump is proposing extremely high and widely applicable tariffs. As such, they would have very negative effects on the U.S. and global economies.

It is difficult to precisely predict the potential damage of this economic policy. That is in part because the list of tariffs that Trump has proposed continues to grow. On one day, he threatened 100% tariffs for countries that uncouple their currency from the dollar. The next day, he wants to impose import taxes of 200% on tractor manufacturer John Deere if it relocates some of its production from the Midwest to Mexico. Such fees would violate the fair trade agreement with Mexico and Canada that Trump himself negotiated during his first term.

In addition, there would be import tariffs of 10% to 20% for all trade partners, which would cause great friction with the EU, among others, and tariffs of 60% or more for goods from China.

The US Would Suffer, Too

If Trump made good on all his tariff promises during a second term in office, he would cause economic damage in the U.S., too.

First, he would inevitably ignite trade wars that would make all participants poorer. Smaller export-oriented countries like Switzerland would be unlikely to introduce retaliatory tariffs, but the EU and China probably would. Certain industries in the U.S. like agriculture or car manufacturing are dependent on exports and would suffer greatly from these trade wars.

Second, tariffs function like an import tax. They make all the washing machines and mangos, the goods that Americans like to have flown in from overseas, more expensive, as well as supply chain products that American companies use for their production.

Thus, the import fees would restimulate the inflation that the U.S. Federal Reserve has just recently gotten under control. Since the majority of Trump’s other policies would increase prices, especially the planned tax cuts and mass deportation of illegal immigrants—there is real danger that inflation could skyrocket again and force the Fed to institute restrictive monetary policies. High interest rates would, in turn, choke economic growth.

Trump Puts Himself under Pressure

Finally, Trump’s tariff strategy poses a long-term threat to America’s power in the world. The all-purpose weapon of tariffs becomes duller with time. Today, it is still potent because exports to the U.S. are still very important for other countries. The U.S. is itself less dependent on others because of its massive domestic market. Exports to Canada, Mexico and the EU, which are by far the three most important export markets for the U.S., each contribute only a little more than 1% to the United States’ gross domestic product.

Over time, tariffs redirect the flow of trade, and the importance of the U.S. as an export market for other countries is decreasing. An isolationist America thus loses influence overseas.

The most potent threat is the one that you do not need to implement. Some trade partners will negotiate with Trump to avoid tariffs. But the ex-president is putting himself under pressure with his strategy. The longer he has to impose high tariffs, the worse the consequences will be — rising inflation, decreasing growth, and diminishing influence overseas. And Beijing and Brussel are aware of that.