Reuters
Donald Trump has pledged to significantly increase tariffs on foreign goods entering the United States if he is elected president again.
He promised tariffs – a form of tax – of up to 20% on goods from other countries and 60% on all imports from China. He even talked about a 200% tax on certain imported cars.
Tariffs are a central part of Trump's economic vision: he sees them as a way to grow the U.S. economy, protect jobs and increase tax revenue.
He said during the election campaign that these taxes “will not be a cost to you, but a cost to another country.”
This is almost universally considered by economists to be misleading.
How do the rates work?
In practical terms, a customs duty is an internal tax levied on goods upon entry into the country, proportional to the value of the import.
So a car imported into the US worth $50,000 (£38,000) subject to a 10% customs duty would be subject to a fee of $5,000.
The tax is physically paid by the domestic company importing the goods, not the foreign company exporting them.
In this sense, it is therefore a simple tax paid by American domestic companies to the American government.
During 2023, the United States imported approximately $3.1 trillion in goods, equivalent to approximately 11% of U.S. GDP.
And tariffs imposed on those imports brought in $80 billion that year, or about 2 percent of total U.S. tax revenue.
The question of where the final “economic” burden of customs duties lies, as opposed to the initial bill, is more complicated.
If the U.S. importing company passes the cost of the tariffs on to the person purchasing the product in the United States in the form of higher retail prices, it would be the U.S. consumer who would bear the economic burden.
If the U.S. importing company absorbs the cost of the tariffs itself and does not pass it on, then that company is said to bear the economic burden in the form of lower profits than it otherwise would have enjoyed.
Alternatively, it is possible that foreign exporters will be forced to reduce their wholesale prices by the amount of the tariff in order to retain their U.S. customers.
In this scenario, the exporting company would bear the economic burden of the tariffs in the form of lower profits.
All three scenarios are theoretically possible.
But economic studies of the impact of new tariffs imposed by Trump during his first term between 2017 and 2020 suggest that most of the economic burden was ultimately borne by American consumers.
A survey conducted by the University of Chicago in September 2024 asked a group of respected economists whether they agreed with the statement that “the imposition of tariffs results in a substantial portion of tariffs is borne by the consumers of the country which promulgates the tariffs, through price increases”. . Only 2% disagree.
Raise prices
Let's take a concrete example.
Trump imposed a 50% tariff on washing machine imports in 2018.
Researchers estimate that the value of washing machines jumped about 12% as a direct result, or the equivalent of $86 per unit, and that U.S. consumers paid a total of about $1.5 billion more per year for these products.
There is no reason to believe that the consequences of even higher import tariffs imposed by a future Trump administration would be any different in terms of distributing the economic burden.
The nonpartisan Peterson Institute for International Economics estimated that Trump's proposed new tariffs would reduce Americans' incomes, with an impact ranging from about 4 percent for the poorest fifth to about 2 percent for the poorest fifth. richer.
A typical household in the middle of the U.S. income distribution would lose about $1,700 each year, according to the think tank's estimates.
The center-left think tank Center for American Progress, using a different methodology, estimates a loss of $2,500 to $3,900 for a middle-income family.
Various researchers have also warned that a major new round of tariffs from the United States could cause a new surge in domestic inflation.
Impact on employment
Yet Trump used another economic rationale to justify his tariffs: they protect and create jobs in the United States.
“Under my plan, American workers will no longer worry about losing their jobs to foreign countries, but instead foreign countries will worry about losing their jobs to America,” he said during the election campaign.
The political context for Trump's tariffs was a long-standing concern about the loss of American manufacturing jobs to countries with lower labor costs, particularly after the signing of the Free Trade Agreement. -North American trade (NAFTA) with Mexico in 1994 and the entry of China into world trade. Organization in 2001.
In January 1994, when NAFTA took effect, the United States had just under 17 million manufacturing jobs. By 2016, that figure had fallen to around 12 million.
Yet economists say it is misleading to attribute this decline to trade, arguing that increasing levels of automation are also an important factor.
And researchers who studied the impact of Trump's first-term tariffs found no substantial positive effect on overall employment in protected U.S. industrial sectors.
Trump imposed 25% tariffs on imported steel in 2018 to protect U.S. producers.
In 2020, total employment in the U.S. steel sector was 80,000, still lower than 2018's 84,000.
Impact on the trade deficit
Trump criticized the U.S. trade deficit, which is the difference between the value of all the things the country imports and the value of its exports in a given year.
“Trade deficits hurt the economy very badly,” he said.
In 2016, just before Trump took office, the total goods and services deficit was $480 billion, or about 2.5% of U.S. GDP. By 2020, this amount had increased to $653 billion, or around 3% of GDP, despite tariffs.
Economists say this is partly because Trump's tariffs increased the relative international value of the US dollar (by automatically reducing the demand for foreign currencies in international trade) and this made products of American exporters less competitive on a global scale.
Another factor explaining this failure to close the trade deficit is the fact that customs duties, in a globalized economy with multinational companies, can sometimes be circumvented.
For example, the Trump administration imposed 30% tariffs on solar panels imported from China in 2018.
The U.S. Commerce Department presented evidence in 2023 that Chinese solar panel manufacturers had shifted their assembly operations to countries including Malaysia, Thailand, Cambodia and Vietnam, then sent finished products to the states. -United from these countries, thus avoiding customs duties.
Some economists support Trump's tariff plans as a way to boost U.S. industry, like Jeff Ferry of the Coalition for a Prosperous America, a national lobbying group, but they represent only a small minority of the profession.
Oren Cass, director of the conservative think tank American Compass, argued that tariffs can incentivize companies to keep more of their manufacturing operations in the United States, which he says has benefits in national defense and supply chain security.
And the Biden/Harris administration, while sharply criticizing Trump's proposed tariff expansion, has kept in place many of those he implemented after 2018.
He also imposed new tariffs on imports of products such as electric vehicles from China, justifying them on grounds of national security, U.S. industrial policy and unfair domestic subsidies from Beijing.
