Why Trump’s plan to escalate tariffs has so many haters

LONDON — The U.S. taxed imports heavily for much of its history before largely abandoning that policy, starting in the 1930s when government leaders embraced the idea of ​​free trade.

High tariffs made a comeback during the 2017-2021 presidency of Donald Trump, who adopted them in an effort to revive U.S. manufacturing and counter what the United States sees as China’s unfair trade practices. Trump’s successor Joe Biden kept the trend going.

Now, Trump, who won his bid for a second term in the White House on November 5, says he will dramatically increase taxes on imports and make them central to his economic policy.

His pledge has reignited the debate over whether tariffs are a valuable tool to compete with economic rivals or a policy weapon with a checkered past that is likely to backfire.

What is Trump proposing?

It is proposed to increase tariffs to 60 percent on goods imported from China, and to 20 percent on goods brought in from the rest of the world.

The US currently imposes tariffs at that level and higher on certain categories of goods, but imposing them at that level across the board would be a radical change.

Currently, the country applies a trade-weighted average tariff of 2 percent to imported industrial goods, which make up 94 percent of U.S. merchandise imports by value, according to the Office of the U.S. Trade Representative. Half of industrial goods enter the US duty-free.

According to a Bloomberg Economics analysis published in October, Trump’s tariff proposals would “push average U.S. tariffs above 20 percent, a level not seen since the early 20th century.”

Can Trump unilaterally raise tariffs?

Yes, although in some cases it would be necessary to first obtain a finding from one of the federal agencies reporting to the President.

Through a number of statutes, Congress has given the U.S. President the authority to change tariffs to address a variety of problems. These include a threat to national security, a war or emergency, damage or potential damage to a U.S. industry, and unfair trade practices by a foreign country.

While companies could try to fight higher rates in court, due to the deference given to presidential power in the past, such challenges would be “steeply uphill,” according to an article from the Center for Strategic and International Studies.

How do rates work?

A rate, also called an excise tax or levy, is usually calculated as a percentage of the value of the good, but can also be charged as a fixed amount per item.

Rates can be assigned to specific product codes, such as truck chassis, or to broad categories, such as electric vehicles.

Who pays the rates?

The tariffs are actually paid by the importer, or by an intermediary acting on the importer’s behalf, although the costs are usually passed on.

Trump argues that ultimately exporters pay for the tariffs. Research has shown that the load is more diffuse.

The foreign company that makes the product may decide to lower prices to appease the importer. Or it could spend significant sums to build a factory elsewhere to avoid tariffs.

Or an importer — Walmart and Target are among the largest in the U.S. — could raise the prices consumers pay at the checkout.

How does China play into all this?

But China’s rise as a global economic power shattered the consensus on free trade.

When China was admitted to the World Trade Organization in 2001, it gained greater access to global markets, even as critics say it has violated the letter and spirit of free trade rules, for example by subsidizing its industries and banning foreign companies operating in China to give up their know-how.

A number of researchers have concluded that competition from China caused a decline in U.S. employment among manufacturers that faced a surge in imports.

During Trump’s first presidency, his administration imposed new tariffs on Chinese imports worth about US$380 billion ($506.7 billion) in 2018 and 2019.

The Biden administration kept these duties in place and raised more in 2024 on goods worth another $18 billion.

The new enthusiasm for tariffs has spread to the European Union. In early October, the country voted to impose tariffs of up to 45 percent on electric vehicles from China, which in turn threatened to retaliate against European products.

On the 2024 campaign trail, Trump argued that across-the-board import taxes would have benefits beyond defending domestic industries: they would flood the Treasury with billions in revenue, incentivize companies that don’t produce goods in the U.S. to do so, and enable the US to obtain concessions from trade allies and rivals alike.

Trump’s Democratic opponent in the election, Vice President Kamala Harris, criticized his proposed rate increases as a “national sales tax” that would hurt consumers. She did not formulate her own trade agenda.

How have the tariff increases affected the US so far?

It can be difficult to understand the economic effects of tariffs. They can boost employment by attracting investment, while companies try to avoid tariffs by moving factories to the taxing country. At the same time, they could trigger retaliatory tariffs that cost jobs in other parts of the economy.

The authors of a highly regarded paper published by the National Bureau of Economic Research concluded that the 2018-2019 Trump tariffs failed to increase jobs in the protected sectors while hurting jobs in targeted sectors of retaliatory tariffs, especially on agriculture.

Economists are still unraveling the inflationary effects of Trump’s initial tariffs, which stem from a much larger shock to supply chains and economic activity that began not long after the start of the US-China trade war: the Covid-19 pandemic.

In February 2019, the Federal Reserve Bank of San Francisco estimated that the rates added 0.1 percentage point to consumer price inflation and 0.4 percentage point to a measure that measures the costs companies incur to invest.

Ms. Erica York, a senior economist at the nonpartisan Tax Foundation, estimates that the Trump-Biden tariffs will increase the average annual U.S. household tax bill by $625.

Additionally, York estimates that the increases will eliminate 142,000 full-time jobs and reduce gross domestic product by an average of 0.2 percent over the long term.

Critics of Trump’s proposal to dramatically increase tariffs worry that it would have the same kind of effects, on a much larger scale.

How will US tariffs impact Singapore?

Any disruption to global trade flows is detrimental to export-driven economies like Singapore.

There are no detailed estimates of the impact Trump’s tariffs would have on Singapore’s economy, which grew barely 1.3 percent in 2019, the slowest pace in a decade, after the first round of the US-U.S. trade war China.

More recently, however, Singapore and some other Asean economies have witnessed a surge in foreign direct investment as many multinationals, especially semiconductor manufacturers and digital infrastructure companies, have adjusted their supply chains to deal with escalating trade and technology tensions between the US and China to circumvent. But there is no guarantee that this will remain the case.

Trump has also pledged to crack down on tariff evasion and trade diversion, which could lead to collateral damage for ASEAN countries and discourage Chinese manufacturing investments in the region. BLOOMBERG

• With additional information from The Straits Times