As the 2024 presidential election heats up, Republican candidate Donald Trump is doubling down on his signature promise to revive U.S. manufacturing by wielding the weapon of tariffs. He argues that these hefty taxes on imported goods will generate billions in revenue, put pressure on foreign countries like China, and ultimately push businesses to relocate production back to American soil.
Trump has long championed tariffs as the key to bolstering the U.S. economy and addressing trade imbalances. In a September debate with Democratic nominee Kamala Harris, he proclaimed, “Other countries are going to finally, after 75 years, pay us back for all that we’ve done for the world.” At a rally in Michigan, he even described tariffs as “the most beautiful word.”
His plan involves imposing a universal tariff of 10% to 20% on all imports, with a whopping 60% levy on Chinese goods and a potential 200% tax on automobiles made in Mexico. Trump confidently insists these measures will safeguard American jobs and shrink the trade deficit.
However, experts are wary of the feasibility of Trump’s ambitious manufacturing revival. “We haven’t made TVs in the US in decades,” points out Handley, an economist, highlighting the lack of capacity in U.S. factories to meet the demands of a large consumer market.
Furthermore, while Trump claims his previous tariffs didn’t spark inflation, economists strongly disagree. Handley estimates that the supply chain disruptions caused by earlier tariffs effectively translated into a 2% to 4% price increase, forcing companies to pass on these costs to consumers. A 2019 study in the Journal of Economic Perspectives found that by the end of 2018, U.S. consumers and importers were shelling out an extra $3.2 billion per month due to the added tariff burden.
The potential impact of Trump’s aggressive tariff policies on global trade is significant. Oxford Economics forecasts that U.S.-China trade could plummet by 70%, with overall U.S. trade volumes shrinking by 10% as companies explore alternative markets and shift towards North American trade partners.
While Trump predicts that his new tariffs could bring in up to $500 billion in annual revenue, economists believe the actual figure might be closer to $200 billion due to the diversion of trade away from China. Additionally, Trump’s proposal to revoke China’s “permanent normal trade relations” status could potentially push U.S. inflation up by 0.4 percentage points in 2025, according to the PIIE.
Trump’s campaign also promises to slash energy bills in half within a year, addressing voter concerns about inflation. Analysts, however, remain skeptical. Yaros, an energy expert, suggests that increased domestic oil and gas production, which Trump links to deregulation, might be limited by market forces. “Producers have shareholders to answer to,” he notes, hinting at the possibility that production increases may not materialize quickly.
Trump’s plan also includes lowering food prices by reducing imports of foreign agricultural goods. But economists warn that such restrictions could trigger retaliatory measures from trade partners, potentially hurting U.S. consumers.
While Trump promises to tame inflation and boost the economy, experts caution that the effects of his proposed tariffs and trade policies remain uncertain. Higher consumer costs and disruptions to global trade are likely to complicate his plans, creating a complex landscape for the U.S. economy.
