For four days last week, Donald Trump was busy in Europe. Between a state visit to Britain, a memorial marking the 75th anniversary of D-Day, and a jaunt at a luxury golf course in Ireland, Trump, it seemed, was consumed by his trip. But in between all the fanfare, he managed to make some noise back home: he threatened to levy tariffs against Mexico to force our southern neighbor’s hand on what he considers an out-of-control border problem. He also casually threatened to raise already-existing tariffs on China by $300 billion while talking to reporters.
The move enraged the Chinese government and shocked Washington, but perhaps it shouldn’t have. After all, Trump’s love of tariffs as a political and economic tool is well-documented. Only a few months ago, Trump proudly called himself a Tariff Man in a tweet where he also promised to “MAKE AMERICA RICH AGAIN.”
As far back as his 2016 presidential campaign, Trump told rally attendees that he would use tariffs to boost the American economy. According to Reuters, in June 2016, Trump “threatened to apply tariffs under sections 201 and 301 of U.S. trade legislation” and said that “China’s entrance into the World Trade Organization enabled the ‘greatest jobs theft in history.'”
So it’s not a surprise that tariffs are what ABC News describes as “one of Trump’s favorite policy tools.” Still, the president’s reliance on this blunt policy tool has many on both sides of the aisle worried about both the short- and long-term impacts on the American economy. It has also raised questions about what the hell tariffs are, how they work, and who is really paying for Trump’s tariffs.
We break it down.
What is a tariff?
Put simply: a tariff is a tax put on imported goods. In a vacuum, a tariff would ostensibly create revenue and protect a country’s industries from being undersold by outside, competing industries. For example, country A has a booming steel industry, and citizens from country A are happy to buy these products. But thanks to a trade agreement, country B is now allowed to sell their steel in country A. Country B’s steel is 20 percent cheaper, so consumers obviously start buying B steel. This starts to hurt country A’s steel industry, so country A enacts a 25 percent tariff, making country B’s steel 5 percent more expensive for consumers than country A’s steel, effectively protecting country A’s steel industry.
But things are never as simple as they seem. According to Investopedia, “By making foreign-produced goods more expensive, tariffs can make domestically produced alternatives seem more attractive.”
They can also be harmful to a country’s economy for several reasons:
- Domestic industries become less efficient due to lack of competition.
- Lack of competition can lead to steeper prices for consumers.
- If a country uses a tariff to pressure a trade partner politically (say, country A puts an import tax on country B’s corn supply, putting economic pressure on country B until they agree to support country A’s attempt to internationally ban making fun of mustaches), that trade partner could hit them with retaliatory taxes. Those retaliatory taxes could go back and forth, creating a trade war.
These trade wars, in particular, are harmful. Despite how high-level and removed from the every-day it sounds, the cost of higher import taxes is often passed onto the consumer, meaning many foreign-made goods that people rely on (say, a contractor who imports steel in order to be able to conduct his business or an individual who buys imported tomatoes because they’re cheap enough to afford) suddenly become out-of-reach expenses.
There’s also a long-established history of tariffs being wielded as tools for isolationism. The most famous example in the U.S. is, of course, the Smoot-Hawley Tariff Act of 1930, which used extremely high import taxes to prevent outside goods from coming into the country. The act imposed 40-48 percent taxes on approximately 900 goods — and it’s often credited as one of the chief drivers behind the worsening of the Great Depression and World War Two.
Tariffs fell out of vogue after World War Two ended; the post-WWII world created numerous global trade agreements and, of course, the World Trade Organization, an international organization which regulates global trade rules among member nations. We have trade agreements like the 1994 North American Free Trade Agreement, an accord between the U.S., Canada, and Mexico, which eliminated most tariffs between the three countries and changed American manufacturing permanently.
What are the tariffs Trump has imposed?
Onto the meat: what tariffs has Trump imposed? Let us count them:
- January 2018: All imported washing machines and solar panels.
- March 2018: 25 percent tariffs on steel imports and 10 percent on aluminum from all suppliers.
- April 2018: 25 percent tariffs on approximately $50 billion of Chinese goods.
- July 2018: 10 percent tariffs on additional $200 billion of Chinese goods.
- May 2019: raise tariffs to 25 percent on an additional $200 billion of Chinese goods.
If you’re wondering why most of these tariffs are aimed at China, it’s because the U.S. is “in a dispute over China’s aggressive campaign to challenge American technological dominance.” In August 2017, Trump ordered an investigation into the alleged theft of American intellectual property by the Chinese. Since he announced the first round of tariffs, the Chinese have retaliated in kind. Further, some of the president’s tariffs — for example, those on washing machines and solar panels — don’t just apply to Chinese-made goods but all imported goods, a move which has angered some of the U.S.’s other trade partners, like the European Union.
What are they doing to the economy? Who is paying for them—the U.S. or our trade partners?
Depending on who you ask, tariffs are either protectionist levies that allow a country’s economy to guard itself from outside competition and thrive, or it’s a drain on consumers and creators alike.
There’s even disagreement within the White House about whether or not Trump’s tariffs have worked in the past and whether or not his most recently threatened tariffs will work in the future. Trump’s economic adviser Larry Kudlow reportedly acknowledged that “both sides will suffer on this.”
UPROXX Life Editorial Director Steve Bramucci discussed the consequences of Trump’s tariffs on an episode of The Young Turks last week.
Bramucci noted, “Tariffs won’t do everything that he wants to do.” Rather, he said, they’ll actually hurt Americans.
Why? Tariffs can be useful but they’re an altogether clumsy tool — a cudgel when what international trade requires is a surgeon’s knife. As Politico reports, the United States needs to develop more comprehensive trade strategies (including incentive programs):
In short, tariffs may be a part of the package to solve America’s economic woes, but not necessarily, and not necessarily the most effective. There is no substitute for rebuilding the social contract that knits together workers, corporations and their government—creating a stronger platform for the United States to face the challenges of an increasingly competitive global economic environment.
One reason why tariffs can’t achieve all of the president’s aims: was pointed out in the Young Turks clip by Brooke Thomas — “The fact that the tariffs get assigned to the importer — that’s the simple part.” In other words: the American business owners who import steel, aluminum, and other goods are the ones who are paying for the extra cost tacked onto the imported goods. They can’t just stop importing these goods and turn to American-made goods as an alternative, given the lack of American-made alternatives.
That means either the business owners cannot afford to make their goods and shut down, or the higher price-tag gets passed onto consumers. One example? When May 2019 trade talks with China broke down, and Trump enacted tariffs on an additional $200 billion of goods, that extra 25 percent cost was passed onto consumers — for everything from furniture to canoes. Another way tariffs hurt the American economy? When Trump enacted steel and aluminum tariffs in 2018, the European Union and Mexico set retaliatory tariffs on U.S. spirits — which had an outsized negative effect on the bourbon industry.
And those tariffs Trump threatened Mexico with? They would have hurt low-income Americans and those living in the midwest the most, according to a new study.
When will the tariffs be lifted?
Not anytime soon, especially given Trump’s recent behavior. Trump’s Mexican tariff threat was canceled over the weekend, which Trump claims was a result of Mexico scrambling to increase immigration enforcement efforts at the border and give the U.S. more power when it comes to deporting Central American asylum seekers. But the truth of the matter is that Mexico had agreed to more stringent immigration enforcement months ago, per the New York Times. This has raised questions about whether or not Trump realized the deal had been made to begin with, and whether or not he made the cancellation announcement to save face. Still, the tariffs, which would have been 5 percent as of today, June 10, and increased to 25 percent in October, will not go into effect and therefore not hurt vulnerable Americans.
China is a different story — especially after trade talks broke down in May. In fact, Trump has threatened China with additional tariffs again since he returned from Europe, stating in a phone interview on Monday, June 10 that if President Xi Jinping is not at the G-20 economic summit later this month, he’ll enact tariffs which will go into effect immediately. He clarified that the administration is prepared to tax the remaining 60 percent of untaxed goods coming in from China.