OP-ED: Tariffs produce chaos, uncertainty
President Trump really seems to misunderstand tariffs and international trade. He seems to think tariffs are what foreign companies are willing to pay the United States government to sell products in the U.S., and since we have the largest market in the world, most countries will pay a lot to access it.
While countries do want access, they don’t pay the tariffs. Importers pay the tariffs, and then recoup most of them by raising prices (so domestic consumers ultimately pay the tariff). That gives competing domestic products the space to raise prices, which is why tariffs are inflationary.
Trump also claims that countries with which we run a trade deficit (China) are treating us very badly. How are they injuring us? They are selling us products we like to buy and lending us money to buy them; there is a trade deficit only because their consumers are not buying as many of our products. If we are being treated so badly, we could simply stop buying Chinese products.
Trump seems to think that trade is a zero-sum game; if we are doing well, the other country must lose. True free trade is the opposite; trade only happens if both parties think they benefit.
That’s not to say everyone benefits. Countries don’t benefit or suffer because of tariffs or trade – sectors within those countries do. A U.S. tariff on steel helps steel producers but hurts steel consumers (a study of the impact of Trump’s last tariffs on steel and washing machines found that each job saved cost up to $900k, paid in higher prices).
The Trump administration’s tariffs are not part of a coherent policy. The administration has claimed they will bring in so much revenue we can reduce income taxes, but also that they will bring back manufacturing jobs, and at the same time provide leverage for the U.S. to get better trade deals. The problem is these goals are contradictory. If the tariffs bring in revenue, then the imports remain high, so jobs are not coming back to America. If the tariffs work to bring jobs back, then they are not bringing in revenue, because domestic production has replaced imports. And if the threat of tariffs brings leverage, then successful negotiations will reduce tariffs (and therefore tariff income).
Trump claimed that he was imposing “reciprocal” tariffs, the idea being that if another country puts a tariff on us, it’s only fair that we put one on them. That’s reasonable. But that’s not how the Trump team calculated the tariffs. They took the trade deficit, divided it by the imports from that country, and then divided that in half, claiming that this took into consideration other barriers to trade (in addition to tariffs). While some countries do impose conditions that prioritize their exports (subsidies for some industries, e.g.), the crude formula used has no relation to those other barriers. It was like they were simply trying to impose substantial tariffs while seeming to be reasonable and were hoping no one would look carefully at their work.
Trump likes tariffs because they allow him to act like a mafia don, granting favors to those who please him. At a fundraising dinner Trump claimed that countries were scrambling to “kiss my (expletive)” in order to get a better tariff deal, though tellingly he’s never released a list of those countries “dying to make a deal.” Apple, which donated $1 million to Trump’s inaugural, got Trump to exempt mobile phones from the tariffs on China. Tariff exemptions are opportunities for corruption.
We also already have trade agreements with most of these countries, which Trump is simply abrogating. If we don’t adhere to existing trade deals, why would countries think deals he negotiates would hold? He wants to get rid of the North American Free Trade Agreement deal he negotiated!
Trump’s whole approach shows a lack of understanding of international trade. It is OK to run a trade deficit with individual countries, because sometimes they produce goods you simply can’t. A tariff on bananas will not increase banana production in the U.S. An overall trade deficit matters for most countries, but because the U.S. dollar is the world’s reserve currency, and the U.S. has been a safe haven for investment, when the U.S. runs a trade deficit, the government simply sells bonds (we may have to raise interest rates to do so) to bring dollars back home. But Trump’s chaotic rollout of these tariffs has jeopardized even that, demonstrated by the bond market falling (which led to Trump’s pausing the tariffs).
Trump also fails to consider services; while not the “‘manly manufacturing” economy that Trump prefers, we run a trade surplus in services, which offsets some of our trade deficit in goods. A good example of Trump’s short-sightedness is his efforts to deport international students. Most international students pay full tuition, which subsidizes less wealthy American students. Higher education brings in a lot of cash from overseas ($44 billion last year, generating 378,000 jobs according to NAFSA: Association of International Educators), but Trump’s actions will scare international students who will go elsewhere. Additionally, many foreign students who end up staying in the U.S. are very productive (from 1901-2023, 36% of U.S. Nobel Prize winners in chemistry, medicine and physics were immigrants).
Tariffs can be part of a coherent economic strategy that seeks to preserve vital industries (defense, microchips) so we can control their production, or used to help nascent industries (solar panels, electric cars) have enough protection to establish themselves in the world economy. Unfortunately, Trump’s tariffs only produce chaos and uncertainty, which benefits no one.
Kent James, of East Washington, has a doctorate in history and policy from Carnegie Mellon University.