As President Trump threatens to slap steep tariffs on many countries, he is boasting that his taxes on imports will be a boon to the U.S. economy, but most economists strongly disagree—many say Trump’s tariffs will increase inflation, slow economic growth, hurt U.S. workers and result in American consumers footing the bill for his tariffs.
“Virtually all economists think that the impact of the tariffs will be very bad for America and for the world,” said Joseph Stiglitz, an economics professor at Columbia University and a winner of the Nobel Memorial Prize in Economic Sciences. “They will almost surely be inflationary.”
On Inauguration Day, Trump threatened to impose a 25 percent across-the-board tariff on all imports from Canada and Mexico on February 1, “because,” he said, “they’re allowing vast numbers of people” to “come in, and fentanyl to come in.” Trump also threatened China with a 10 percent tariff unless it stops fentanyl shipments, while he maintained his longer-term threat of a 60 percent tariff on Chinese goods.
“It’s inconceivable that other countries won’t retaliate,” said Stiglitz, who was chairman of President Clinton’s Council of Economic Advisers. “Even if some of the governments might not want to retaliate, their citizens will demand that you can’t allow yourself to be beaten up. When you make like a gorilla thumping on his chest, are countries just going to say, ‘Are we chopped liver?’ Their politics will demand that they do something.”
The tariffs, tensions, and fears of retaliation and a trade war are likely to cause many businesses to reduce their planned investments, and that, economists say, will hurt economies across the world. Marcus Noland, executive vice president of the Peterson Institute for International Economics, said, “The impact of imposing these tariffs,” Noland said, will “have the effect of depressing U.S. economic growth, contributing to a higher rate of inflation, and those effects will be worse if the other countries retaliate in kind.”
Trump insists that his aggressive trade policies will be a win–win for Americans. On Inauguration Day, the White House issued his “America First Trade Policy” memo, saying, “I am establishing a robust and reinvigorated trade policy that promotes investment and productivity, enhances our nation’s industrial and technological advantages, defends our economic and national security, and—above all—benefits American workers, manufacturers, farmers, ranchers, entrepreneurs and businesses.”
But many economists say this is wishful thinking, predicting that Trump’s tariffs will injure many U.S. manufacturers, farmers, and workers. Jim Stanford, a prominent Canadian economist who was long the top economist for Canada’s auto workers’ union, warned that if Trump imposes 25 percent tariffs on Canada, it would badly damage the U.S. and Canadian auto industries.
“The Canadian and U.S. auto industries have been intertwined for sixty years,” Stanford said. “What happens if they put a 25 percent tariff on all the auto parts and products coming from Canada and Mexico? Some auto parts cross the border eight times before they’re put in the final vehicle.” For instance, some basic steel might be shipped from Mexico to the United States, where it is molded into a carburetor part and then that piece is shipped to Canada where the carburetor is produced, and that carburetor is shipped to Mexico to be installed during final assembly before that car is ultimately sold in the United States.
“The tariffs would apply each time parts cross the border,” Stanford said. “That 25 percent would be compounded on each step. The impact on costs would be astounding.”
Stanford said it’s wrong for Trump to suggest that Canada and its automakers would pay for those 25 percent tariffs. “By and large, that’s false. It’s clearly going to raise auto prices in America. It is Americans who will directly pay for it. There’s no doubt about that.”
Economists note that one result of sizable tariffs is that consumers ultimately fork over more money to the government when they buy imports and that overall leaves consumers with less money to buy goods, and that hurts manufacturers and retailers.
The Peterson Institute’s Noland noted that Trump and other supporters of across-the-board tariffs “claim it will aid industrial revitalization. What we found is it actually tends to have the opposite effect. It tends to damage the industrial sector by decreasing efficiency in production relative to other countries.”
When Trump hit China with tariffs during his first term in office, China retaliated in particular against U.S. agricultural exports, hurting American farmers. Noland predicted that if Trump again slaps tariffs on China, U.S. farmers would again get hit by retaliation.
Eswar Prasad, a Cornell University expert on trade policy, warned that Trump’s tariffs will have additional undesirable effects. “U.S. exporters will face a particularly tough time, as they are likely to face rising tariff barriers in their foreign markets,” Professor Prasad said. “In addition, tariffs are likely to drive up the dollar and reduce the competitiveness of their exports in global markets.”
He added that the looming threat of tariffs along with the unpredictability of what they will be is “fomenting enormous uncertainty in the global business environment, which is harmful for business investment and job creation.”
Professor Stiglitz sees another worrisome downside to Trump’s tariff plans and the likely retaliation against the United States. When central bankers see inflation climbing due to tariffs, “central banks will raise interest rates,” Stiglitz said. “That has a chance of leading to the worst of possible outcomes—interest rates going up with stagflation, interest rates going up in the face of a weak economy.”
In ways, Stiglitz explained, this would prove counterproductive to one of Trump’s goals for tariffs: to have them help pay for Trump’s tax cuts for billionaires. “If growth slows down, tax revenues will slow down,” he said.
David Seif, Nomura’s chief economist for developed markets, said several Trump policies, including tax cuts and reduced regulations, could help offset tariffs’ harmful effects on economic growth. But because of Trump’s tariffs, he said, “there is likely to be higher inflation this year than there otherwise would be, and that might limit the Federal Reserve to a single rate cut this year.” That would undercut Trump’s hopes of getting the Fed to rapidly cut rates.
Seif said the Trump administration seems to be considering two waves of tariffs—a near-term wave, for instance, to get countries to slow the flow of immigrants and fentanyl to the United States. Then he sees a longer-term wave of perhaps large, across-the-board tariffs aimed at generating revenue and strengthening U.S. manufacturing.
But economists warn that with the United States near full employment—the jobless rate is just 4.1 percent— it could be hard to find enough workers to significantly expand the manufacturing sector, especially when many immigrant workers face deportation.
Lindsay Owens, executive director of the Groundwork Collaborative, a progressive policy think tank, said it’s hard to predict what will happen on tariffs because “there is a kind of war going on in the Republican Party between where the MAGA folks are on trade and where the Chamber of Commerce is.”
Owens said many people are asking, How do Trump’s tariff policies that will result in higher costs for consumers square with Trump’s promise to lower prices for American families? She warned that tariffs will hit less-affluent Americans hardest because they “spend a disproportionate amount of their income on consumption”—with many families buying imported bananas, coffee, phones, computers, televisions, and cars.
Owens noted that Trump advisors have talked up how tariffs will help U.S. workers while also helping finance trillions in tax cuts for the rich. “If these tariffs are to pay for tax cuts for billionaires,” Owens asked, “doesn’t the supposed benefits that tariffs have for the working class get canceled out somewhat?”
In a post on January 27, Paul Krugman noted that Trump’s plan to slam Canada and Mexico with tariffs appeared to violate the North American Free Trade Agreement, which the first Trump administration renegotiated.
“Now a U.S. president is threatening to ignore this pact and unilaterally slap on high tariffs,” Krugman wrote. “In which case you have to ask, what’s the point of negotiating with the United States? What’s an agreement worth if a U.S. president can decide to ignore the agreement whenever he feels like it?”
The Peterson Institute’s Noland said he fears that Trump’s big tariff push will undermine Washington’s relations with other countries. “It poisons the well. It leaves bad feelings and resentment,” Noland said. “It antagonizes the rest of the world.”
Note: This commentary is co-published with The Guardian.
Tags: donald trump, tariffs, u.s. economy
Economists Agree: Trump Is Wrong on Tariffs
As President Trump threatens to slap steep tariffs on many countries, he is boasting that his taxes on imports will be a boon to the U.S. economy, but most economists strongly disagree—many say Trump’s tariffs will increase inflation, slow economic growth, hurt U.S. workers and result in American consumers footing the bill for his tariffs.
“Virtually all economists think that the impact of the tariffs will be very bad for America and for the world,” said Joseph Stiglitz, an economics professor at Columbia University and a winner of the Nobel Memorial Prize in Economic Sciences. “They will almost surely be inflationary.”
On Inauguration Day, Trump threatened to impose a 25 percent across-the-board tariff on all imports from Canada and Mexico on February 1, “because,” he said, “they’re allowing vast numbers of people” to “come in, and fentanyl to come in.” Trump also threatened China with a 10 percent tariff unless it stops fentanyl shipments, while he maintained his longer-term threat of a 60 percent tariff on Chinese goods.
“It’s inconceivable that other countries won’t retaliate,” said Stiglitz, who was chairman of President Clinton’s Council of Economic Advisers. “Even if some of the governments might not want to retaliate, their citizens will demand that you can’t allow yourself to be beaten up. When you make like a gorilla thumping on his chest, are countries just going to say, ‘Are we chopped liver?’ Their politics will demand that they do something.”
The tariffs, tensions, and fears of retaliation and a trade war are likely to cause many businesses to reduce their planned investments, and that, economists say, will hurt economies across the world. Marcus Noland, executive vice president of the Peterson Institute for International Economics, said, “The impact of imposing these tariffs,” Noland said, will “have the effect of depressing U.S. economic growth, contributing to a higher rate of inflation, and those effects will be worse if the other countries retaliate in kind.”
Trump insists that his aggressive trade policies will be a win–win for Americans. On Inauguration Day, the White House issued his “America First Trade Policy” memo, saying, “I am establishing a robust and reinvigorated trade policy that promotes investment and productivity, enhances our nation’s industrial and technological advantages, defends our economic and national security, and—above all—benefits American workers, manufacturers, farmers, ranchers, entrepreneurs and businesses.”
But many economists say this is wishful thinking, predicting that Trump’s tariffs will injure many U.S. manufacturers, farmers, and workers. Jim Stanford, a prominent Canadian economist who was long the top economist for Canada’s auto workers’ union, warned that if Trump imposes 25 percent tariffs on Canada, it would badly damage the U.S. and Canadian auto industries.
“The Canadian and U.S. auto industries have been intertwined for sixty years,” Stanford said. “What happens if they put a 25 percent tariff on all the auto parts and products coming from Canada and Mexico? Some auto parts cross the border eight times before they’re put in the final vehicle.” For instance, some basic steel might be shipped from Mexico to the United States, where it is molded into a carburetor part and then that piece is shipped to Canada where the carburetor is produced, and that carburetor is shipped to Mexico to be installed during final assembly before that car is ultimately sold in the United States.
“The tariffs would apply each time parts cross the border,” Stanford said. “That 25 percent would be compounded on each step. The impact on costs would be astounding.”
Stanford said it’s wrong for Trump to suggest that Canada and its automakers would pay for those 25 percent tariffs. “By and large, that’s false. It’s clearly going to raise auto prices in America. It is Americans who will directly pay for it. There’s no doubt about that.”
Economists note that one result of sizable tariffs is that consumers ultimately fork over more money to the government when they buy imports and that overall leaves consumers with less money to buy goods, and that hurts manufacturers and retailers.
The Peterson Institute’s Noland noted that Trump and other supporters of across-the-board tariffs “claim it will aid industrial revitalization. What we found is it actually tends to have the opposite effect. It tends to damage the industrial sector by decreasing efficiency in production relative to other countries.”
When Trump hit China with tariffs during his first term in office, China retaliated in particular against U.S. agricultural exports, hurting American farmers. Noland predicted that if Trump again slaps tariffs on China, U.S. farmers would again get hit by retaliation.
Eswar Prasad, a Cornell University expert on trade policy, warned that Trump’s tariffs will have additional undesirable effects. “U.S. exporters will face a particularly tough time, as they are likely to face rising tariff barriers in their foreign markets,” Professor Prasad said. “In addition, tariffs are likely to drive up the dollar and reduce the competitiveness of their exports in global markets.”
He added that the looming threat of tariffs along with the unpredictability of what they will be is “fomenting enormous uncertainty in the global business environment, which is harmful for business investment and job creation.”
Professor Stiglitz sees another worrisome downside to Trump’s tariff plans and the likely retaliation against the United States. When central bankers see inflation climbing due to tariffs, “central banks will raise interest rates,” Stiglitz said. “That has a chance of leading to the worst of possible outcomes—interest rates going up with stagflation, interest rates going up in the face of a weak economy.”
In ways, Stiglitz explained, this would prove counterproductive to one of Trump’s goals for tariffs: to have them help pay for Trump’s tax cuts for billionaires. “If growth slows down, tax revenues will slow down,” he said.
David Seif, Nomura’s chief economist for developed markets, said several Trump policies, including tax cuts and reduced regulations, could help offset tariffs’ harmful effects on economic growth. But because of Trump’s tariffs, he said, “there is likely to be higher inflation this year than there otherwise would be, and that might limit the Federal Reserve to a single rate cut this year.” That would undercut Trump’s hopes of getting the Fed to rapidly cut rates.
Seif said the Trump administration seems to be considering two waves of tariffs—a near-term wave, for instance, to get countries to slow the flow of immigrants and fentanyl to the United States. Then he sees a longer-term wave of perhaps large, across-the-board tariffs aimed at generating revenue and strengthening U.S. manufacturing.
But economists warn that with the United States near full employment—the jobless rate is just 4.1 percent— it could be hard to find enough workers to significantly expand the manufacturing sector, especially when many immigrant workers face deportation.
Lindsay Owens, executive director of the Groundwork Collaborative, a progressive policy think tank, said it’s hard to predict what will happen on tariffs because “there is a kind of war going on in the Republican Party between where the MAGA folks are on trade and where the Chamber of Commerce is.”
Owens said many people are asking, How do Trump’s tariff policies that will result in higher costs for consumers square with Trump’s promise to lower prices for American families? She warned that tariffs will hit less-affluent Americans hardest because they “spend a disproportionate amount of their income on consumption”—with many families buying imported bananas, coffee, phones, computers, televisions, and cars.
Owens noted that Trump advisors have talked up how tariffs will help U.S. workers while also helping finance trillions in tax cuts for the rich. “If these tariffs are to pay for tax cuts for billionaires,” Owens asked, “doesn’t the supposed benefits that tariffs have for the working class get canceled out somewhat?”
In a post on January 27, Paul Krugman noted that Trump’s plan to slam Canada and Mexico with tariffs appeared to violate the North American Free Trade Agreement, which the first Trump administration renegotiated.
“Now a U.S. president is threatening to ignore this pact and unilaterally slap on high tariffs,” Krugman wrote. “In which case you have to ask, what’s the point of negotiating with the United States? What’s an agreement worth if a U.S. president can decide to ignore the agreement whenever he feels like it?”
The Peterson Institute’s Noland said he fears that Trump’s big tariff push will undermine Washington’s relations with other countries. “It poisons the well. It leaves bad feelings and resentment,” Noland said. “It antagonizes the rest of the world.”
Note: This commentary is co-published with The Guardian.
Tags: donald trump, tariffs, u.s. economy