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Jof Biden approval ratings are weak and Donald Trump is cruising to the Republican presidential nomination, so it’s wise to consider what another Trump term might bring. While much of Mr Trump’s policy agenda is chaotic, in one area he is clear: he wants to raise taxes. A lot. He has proposed slapping a 10% tariff on all imported goods, thus lowering the country’s average and bringing America’s trade protectionism back to its peak in mid- the 20th century.
This is not a subtle conversation. Mr. Trump’s lieutenants want to double down on the bad bets they placed on his presidency. Robert Lighthizer, Mr. Trump’s chief trade negotiator, has proposed a general target that would be as high as necessary to eliminate the country’s trade deficit. Peter Navarro, a senior adviser in Mr. Trump’s White House, has called for complete fairness: if any country has high tariffs on certain American products, Mr. Trump should match them. Economic populists, meanwhile, are trying to sell Americans on the merits of all this. On October 28 the The Wall Street Journal published an essay by a man arguing “Why Trump is right on taxes”. In fact, the policy would not only fail to achieve its goals, it would also do great harm to America and the world economy.
Mr Trump and his fellow travelers claim that the tariffs hit three targets: they lead to a reduction in America’s huge trade deficit, a cause (in their view) of economic weakness ; they encourage businesses to manufacture at home; and they oppose the obvious injustice of the global economic system in which other countries, especially China, take advantage of America’s openness.
All of these tips are basic. The argument that tariffs determine the size of the trade deficit is wrong both in theory and in practice. The main reason for the trade balance is America’s low national savings rate, which partly reflects the consumer-driven economy. Rather than being a sign of fragility, his desire to import is a testament to his dynamism. America has run a trade deficit every year since 1975, during which time it has been the world’s leading economic power. And Mr. Trump’s own experience shows that tariffs alone do little to change the trade deficit. He expanded nearly 25% during his time in office.
Tariffs help some manufacturers. Protected industries tend to expand their share of the domestic market, as steelmakers have been imposing tariffs on them since Mr. Trump. But at what cost? Sheltered companies can get away with being more efficient than their global competitors. Other domestic industries are suffering: one study estimates that steel users paid a whopping $650,000 for each steelmaking job created by Mr. Trump’s tariffs. And although Mr. Trump says that tariffs are paid “mostly by China”, the burden actually falls on American consumers, through higher prices. A 10% universal tax would cost every American household an average of $2,000 a year.
Finally, tariffs will not fix the global trading system but make things worse. Other countries would retaliate, as they did at Mr. Trump’s first rodeo. That would be a global tax on trade, adding to the risks of inflation. The World Trade Organization would be on the brink, after being undermined by American administrations over the years, including the current one. And tariffs would strain relations between America and its allies, undermining efforts to create supply chains independent of China.
Unfortunately, Mr. Biden has little standing to criticize Mr. Trump on protectionism. Its subsidies for electric vehicles, wind turbines and more will be discriminatory against foreign countries and could result in the loss of public funds. It has left most of Mr Trump’s original tariffs untouched and may re-impose tariffs on European steel as transatlantic talks falter.
That difficult record is all the more reason to fear Mr. Trump’s plans. On trade it has been influential, turning America from a force for free trade into an apologist for protectionism. With a 10% target, that ugly transformation would be complete. ■
