Donald Trump’s reelection marks a strong resurgence of protectionism in the United States, with his administration implementing a range of trade protectionist policies early in his second term.
These include a 25% tariff on imports from Canada and Mexico (which was then promptly delayed temporarily), a 10% tariff increase on Chinese imports and, more recently, an increase in tariffs on steel and aluminium imports.
Trump also plans to introduce a reciprocal tariff that would take effect almost immediately, applying to all countries and matching the tariff rates imposed by each trading partner.
Trump’s tariff policies are rooted in his belief that globalisation has caused the United States to lose out to major trading partners like China, Mexico and Canada.
He has argued that while these countries benefit from US trade, his country is left with a large trade deficit and diminishing economic power.
For Trump, this situation justifies a shift away from international agreements and global trade systems, with a focus on rewriting trade rules to prioritise US interests.
As he declared during his campaign, Trump believes tariffs will bring multiple benefits to the United States. Trump asserted that high tariffs will revitalise domestic manufacturing by encouraging companies to produce goods in the United States, creating jobs and boosting wages.
He claims that the increased fiscal revenue brought about by tariffs would allow the United States to carry out domestic tax-reduction reforms, bringing lower tax burdens to domestic businesses and households.
He also sees tariffs as a means to enhance national security by cutting reliance on foreign supply chains, ensuring more economic independence. Additionally, he views tariffs as a tool to counter unfair trade practices like currency manipulation and industry subsidies, levelling the playing field for US companies.
These benefits all seem enticing. However, Trump’s tariffs may not achieve their stated goals for the following reasons.
First, economic research shows that high tariffs do not lead to job creation, wage increases or economic growth over the long run.
On the contrary, tariff increases have an adverse impact on output, productivity and consumption.
Tariff increases also lead to more unemployment and higher inequality, further adding to the deadweight losses of tariffs.
Mainstream economists are generally sceptical of tariffs, considering them a mostly inefficient means for governments to promote prosperity.
A National Bureau of Economic Research working paper examining the effects of Trump’s first-term trade war found that it has not to date provided economic support for the US heartland.
Import tariffs on foreign goods neither raised nor lowered US employment in newly protected sectors; and retaliatory tariffs had clear negative employment impacts, primarily in agriculture.
These detriments were only partly mitigated by compensatory US agricultural subsidies. Protectionist tariff policies have increased political support for Trump in these regions, but the tariffs have not brought corresponding economic returns to these regions.
Second, high tariffs alone cannot achieve the policy goals of balanced trade and domestic tax reductions. In the era of global production, the United States, like other major global economies, has a large amount of imported intermediate inputs in its exports.
Many US exports use imports as intermediate inputs to final goods produced domestically. Raising the cost of these inputs through tariffs will raise the prices of such US exports and make them less competitive abroad. — China Daily/ANN
Wu Songbo is an assistant research fellow at the Institute of American Studies, Chinese Academy of Social Sciences. The views expressed here are the writer’s own.
