Lexie Shadix, Campus Carrier deputy news editor
On Feb. 1, the White House released a fact sheet detailing President Trump’s plan to impose tariffs on imports from Canada, Mexico and China. The White House says that he is “implementing a 25% additional tariff on imports from Canada and Mexico and a 10% additional tariff on imports from China.” Trump says he is using these economic sanctions as “a tool to secure our borders against illegal migration and combat the scourge of fentanyl.” However, tariffs are often not incredibly effective.
“Tariffs are like throwing sand in gears,” Frank Stephenson, professor of economics, said. “They slow down international trade and economic integration across countries.”
These tariffs are not something that have taken many people by surprise. When Trump served his first term as president, he announced in March of 2018 his plan to impose a 25% tariff on steel and a 10% tariff on aluminum imports. Many of his original tariffs were kept in place by the Biden administration and Trump was not quiet about his intentions to raise tariffs in the event he was reelected.
“On one hand, he might say it’s a negotiation tactic and on the other hand he’ll say that [tariffs are] good for the economy,” Alex Marsella, assistant professor of economics and data analytics, said. “I think he likes tariffs economically because his perception is that – and economists disagree with this – by taxing foreign goods you will create more jobs domestically because people are not relying on those foreign countries.”
However, many may be misguided about what tariffs do.
“I think a lot of people that are proponents of tariffs look at the gap between the amount of exports, the stuff that the US creates and ships to other countries, [and imports],” Brian Meehan, an associate professor of economics at Berry, said. “They [see] we import more, and they say it’s a bad thing, but what they neglect there is the investment that comes in from other places to fill that gap.”
While trade deficits can be viewed as a bad thing, that is not always the case. When countries have trade deficits, that is often accompanied by an inflow of foreign investment.
“The way international finance works [is that] countries that have other countries investing in them – building new factories and things like that – also have trade deficits,” Stephenson said. “We like that other countries want to invest here. It’s a sign of confidence in us as a country, economic confidence in us. So, it’s, in some ways, a really good thing to be running a trade deficit because it basically means that the rest of the world is giving your country a vote of confidence as a good place to invest.”
Of course, trade deficits do not always imply a country is experiencing beneficial investment. But there is an undeniable presence of foreign investment in the US, even in Rome. For example, between Rome and Cartersville, there is a Korean-owned plant being built to create batteries for electric vehicles.
“The seemingly very mercurial nature of Trump very spontaneously imposing tariffs, I think [may cause] there to be a lack of confidence in the US,” Stephenson said.
While is certainly attractive for companies to invest in the US now, tariffs will make it more expensive to bring in key materials for their products, making it likely that those companies will take their business elsewhere.
Trump campaigns on an “America first” mindset, and this seems to come into play in his decision to potentially impose these tariffs. He wants to not only secure the border and decrease the influx of fentanyl into the country but also create more jobs for American citizens and increase domestic production of goods. However, this ambitious agenda cannot be accomplished purely by placing high tariffs on China, Mexico, and Canada.
While people could see the initial benefits of tariffs, they are usually blind to the intangible costs. Tariffs are not only taxes on imports, they are taxes on exports, and can lead to less jobs in the long run. If foreign countries can’t sell their goods to the US, then they will not be able to get the American dollars needed to buy US goods. Furthermore, while some jobs may be created in the various industries that create materials that are being taxed, such as steel, less jobs will be created in industries that use that steel.
“There’s really no good economic argument for tariffs,” Marsella said. “Tariffs do not result in higher [gross domestic product] GDP; they do not result in more jobs and there’s not any evidence that they result in higher wages. The evidence that we have from even Trump’s first administration, some of which Biden continued, is that the effects were negative. People are unable to see what [economists] call the unseen costs, that’s probably why tariffs remain popular even though economists universally, across the political spectrum, think they’re bad.”
Generally, if these tariffs go into effect, Americans can expect to pay for virtually all of them.
“It will be a very expensive thing for American consumers,” Stephenson said. “There are estimates that are out there of [households paying an extra] several hundred dollars per year.”
Oftentimes, the trend is that when countries open themselves up to trade that they experience economic growth. This can be seen with China, which had a tremendous amount of growth when they began working with other countries economically. The rise of economic nationalism could lead to a decline in economic growth.
“The evidence that we have suggests that economic nationalism is expensive and it makes the people poorer in the county,” Meehan said. “Things [such as] national industrial policy, quotas and ripping up free trade agreements, all [these things] are part of this ‘America First’ idea. That idea makes us poorer.”
Many countries are experiencing a cultural push towards economic nationalism, and rather than trade policy being tied to economic realities, it has become tied to “cultural headwinds.”
“I think the ‘country first’ [mindset] sees the world as more of a zero sum situation,” Meehan said. “When I trade with somebody, they win and I win, that’s what we call mutually advantageous trade. Those are not zero sum arrangements. When you see the world like [a] zero sum, it’s dangerous from a number of margins.”
Not only does cutting off trade curb economic prosperity, it also leads to disputes between countries and less globalization. Of course, globalization has its drawbacks, but it has been seen to lead to many long-term benefits, like higher standards of living and a more peaceful world. Even areas that have dealt with trade shocks, such as Pittsburg, PA, have been able to remain wealthy because of free trade.
Tariffs are not a new thing in the US. One of the more detrimental ones was the Smoot-Hawley Tariff Act of 1930, which raised import duties by 40% to 60% and worsened the Great Depression. Trump has put the tariffs he’s threatened to impose against Canada and Mexico on hold for a month. As previously stated, one of his main goals with tariffs on Mexico seems to be to halt the flow of fentanyl into the US, but that outcome is an unlikely result of tariffs.
“That’s a potential outcome of the tariffs as a threat, not as an actual policy,” Marsella said. “The tariff is just a negotiation tactic where you’re basically threatening a country with economic damage.”
Ultimately, there is little that can be done to mitigate the effects that tariffs will have on consumers and producers. And if the tariffs are to be kept in place, then the US runs the risk of falling behind on the global stage.
“If we impose tariffs on lots of countries, they’ll just start trading around us [and] trading without us,” Stephenson said. “They’ll develop other trade relationships. We saw something analogous to this in the first Trump administration. At the time Trump took office, there was discussion for the Trans-Pacific Partnership, which was basically a trade agreement among a bunch of countries that are around the Pacific Ocean. Trump kept the US out of that, and it turns out that all the other countries went ahead with their trade partnership without us being involved, and they’re happily trading with each other now.”
The negative effects of tariffs are not hypothetical, but whether all the promised tariffs will go into effect is. As prevoiusly stated, some of the tariffs that were set to be imposed have now been put on halt. Specifically, the tariffs that were going to be applied to Mexico have been put on hold for a month since Mexico promised to increase the amount of troops stationed at the border in an attempt to make it more secure. Trump is changing his mind or signing new executive orders into action nearly every day, ensuring that the future of US trade policy remains unknown at this time.