Donald Trump says his trade policy would be a way to protect the US from exploitation.
Yet, by applying a base tariff on virtually all foreign goods, he’s starting a “war against trade itself,” Alan Wm. Wolff wrote for the Peterson Institute for International Economics.
The Republican candidate has made tariffs a cornerstone of his prospective trade policy, proposing a universal 10% duty on all imports heading into the US. As for Chinese goods, Trump has touted tariffs as high as 60%.
Still, before the US embraces this level of protectionism, it might be better to dust off some history, the left-leaning think tank said — blanket tariffs aren’t an entirely untested phenomenon.
Something similar to this last happened at the onset of the Great Depression, when struggling US farmers asked that foreign imports be taxed.
That spawned the 1930 Tariff Act, but the legislation was far more ambitious than first conceived. Aside from just agriculture, a wide swath of industries notched new protections, and import tariffs rose an average 47%.
World economies fired back almost immediately. Even before the bill went into effect, about a dozen countries retaliated with their own restrictions. Great Britain followed a year on, imposing tariffs of up to 50%, Wolff said.
“Economists agree that high tariffs broadened and deepened the Great Depression, when US unemployment reached 25 percent and we nearly lost our democracy,” the distinguished visiting fellow wrote.
Today, the US tariff averages 3%, a safe distance away from the extremes nearly a century ago. But if Trump wins back the presidency, his experiments with blanket protectionism could change this.
On its own, that might not mean much to consumers, who are likely growing desensitized high tariff talk and warnings about trade standoffs, he added, but if tariffs do jump sharply, there will be real consequences for the public.
According to separate research from the Peterson Institute, Trump’s proposed taxes could cost consumers 2% of US GDP, totalling $500 billion a year. By another estimate, households would pay an extra $1,500 per year from these tariffs.
And other academics, such as Harvard economist Kenneth Rogoff, have warned of inflationary implications.
Meanwhile, trade war warnings aren’t limited to just Wolff. However, other experts have noted that such conflicts could be in store, irrelevant of who is president.
That at least seems likely between the US and China, after the country’s advanced manufacturing was significantly sped up. Although higher production was meant to help stimulate China’s economy, Beijing is now sitting with a glut of products it needed to unload.
“They need to get that export engine up,” China Beige Book CEO Leland Miller said in March. “That’s going to cause a lot of problems globally, politically. That’s why I think we’re going to be entering into a trade war next year.”
In fact, the US appears to already be responding, after President Biden announced a spree of tariffs on China’s tech exports earlier this month.
But while Biden’s fresh restrictions may seem high, Waller noted that they’re still not comparable to Trump’s proposal.
For instance, the new 50% tariffs on Chinese semiconductors may seem extreme, but they target a trade that’s just below $1 billion a year, he said. Compared to that, the US imports six times that amount each month.
“Unlike the Biden tariffs, the Trump plan is for increased tariffs on all products from all countries. It is not just America First; it is America Alone,” Wolff wrote.
Read the full article here
