Anyone who was under the mistaken impression that prices and inflation would come down under a Trump administration are very likely in for a rude awakening. Trump said that he would immediately level 25 percent tariffs on all products coming in from Mexico and Canada and impose an even higher tariff rate on China, nominally 60 percent. Canada and Mexico are the two largest trading partners of the United States. In 2023, the United States imported $475 billion worth of goods from Mexico, $427 billion from China and $419 billion from Canada.
All economists like to make simplifying assumptions so let me do the same. If Trump were to do exactly what he says he is going to do, the cost of those goods being imported from those countries would be: Mexico (increase from $475 billion to $594 billion); China (increase from $427 billion to $683 billion); Canada (increase from $419 billion to $524 billion). That would be a total increase in the cost of goods being imported to the United States of $480 billion, i.e., almost half a trillion dollars.
The last time Trump engaged in trade wars and was levying tariffs right and left, some estimates indicate that it resulted in a cost to the American consumer of around $80 billion which is equivalent to a large tax increase. This time will likely be worse. The simple fact is, if corporations must pay more to import products from abroad, they will pass some or all those costs on to the American consumer. The American consumers will pay the brunt of these tariffs just like we did the last time.
The other side of Trump’s tariff strategies is that countries will retaliate by levying their own tariffs on products being imported from America making those products more expensive for foreigners to purchase and thus, making American products less competitive abroad. This could adversely affect American companies. When Trump imposed his tariffs on China last time, they retaliated by levying tariffs on American soybeans among other things. China is the world’s largest importer of soybeans, and those tariffs had a huge adverse effect on American soybean growers. To solve that problem, Trump provided billions of dollars worth of subsidies to soybean formers which came right out of our tax dollars.
There is certainly a place for tariffs in international trade. However, there is no reason to expect that the Trump administration this time will enact tariffs in a more strategic way than they did the last time, and, in fact, it will likely be even worse. Lobbying companies and law firms will reap millions of dollars filing for exemptions to these new tariffs. Companies in Trump’s good graces will likely be able to push through those exemptions. Companies that fall from favor in the Trump administration are likely to be penalized. As I pointed out in an earlier post, graft and corruption are likely to run rampant. And in the end, the billionaires now running the government will get richer and the American consumer will get screwed.
There is the old saying in politics, “It’s the economy, stupid.” These trade wars will certainly have a massive impact on the economy, but probably not what the ardent Trumpophiles think. This time it really boils down to, “Do the math, stupid.”
