Polls show that Americans’ concerns about inflation are driving down perceptions of an otherwise strong economy, creating a major problem for President Joe Biden as he seeks re-election. To further complicate things for Biden, there’s little he can do as president to lower prices. That’s why he’s focused on things he can control, such as forgiving student debt, fighting junk fees and capping the cost of insulin for seniors on Medicare.
In a normal election year, Biden’s Republican challenger would have an easy task: constantly remind voters about inflation, blame the president’s economic policies for causing it and make some vague promises, if elected, to fix it. Donald Trump has gotten the first two parts of that formula down. But in his typical eat-the-chess-pieces approach to strategy, the presumptive GOP nominee has proposed a policy that would, if anything, make inflation worse.
For months, Trump has called for imposing a 10% across-the-board tariff on all imported goods. This approach would be far broader in scope than the strategy of his previous term. During those four years, Trump levied tariffs on everything from aluminum to washing machines, but did so in a far more scattershot fashion. This new strategy would be a shocking shift in U.S. policy and affect literally every corner of the economy.
Not that Trump is concerned: In an interview Monday with CNBC, he repeated his love of tariffs. “I’m a big believer in tariffs,” he said on “Squawk Box,” adding that they “give you power in dealing with other countries.”
In the past, Trump has promised a lot of things that he didn’t follow through on, but he’s unusually consistent on his love of tariffs. Voters should expect that he will reimpose them if elected, especially since Congress has largely ceded the handling of tariffs to the White House in recent decades.
It’s almost hard to wrap your head around how massive Trump’s proposal is.
It’s almost hard to wrap your head around how massive Trump’s proposal is. According to the Office of the U.S. Trade Representative, the U.S. imported some $3.2 trillion worth of goods in 2022, making us the largest importer in the world.
Imagine that you are a foreign executive who is sending those products to the U.S. and you’re slapped with a 10% tariff. What are you going to do: pay the cost out of your own coffers, hurting the company’s bottom line, angering shareholders and possibly losing your job as a result? Or just raise prices 10% to cover the cost? That’s why the nonpartisan — but generally business-friendly — Tax Foundation, a D.C. think tank, argues that Trump’s universal tariff would essentially amount to a $300 billion tax on U.S. consumers, who will end up paying their costs.
And it would disproportionately hurt the working class, to boot, since poor people spend a higher percentage of their household budget on basic necessities like food that would be affected by rising prices.
And those are just the initial effects. Economists warn that broad-based tariffs would likely set off a trade war as countries hurt by the new Trump policy retaliate with their own tariffs, hurting U.S. manufacturers that rely on exports as well. Indeed, that’s exactly what happened in Trump’s first term, as China's retaliatory tariffs hurt U.S. agricultural exports and disrupted U.S. manufacturing supply chains.
Trump likes to cite his business background as a reason why he can handle the economy. His time in office already showed this to be a myth, and in this case, his background has proved particularly detrimental. Trump’s background is not in business broadly, but in real estate. The deals he made there were generally zero-sum, with one side’s win meaning a loss for the other. (If you’ve bought a house, you’ve seen this in action. Either you or the seller have to pay for that property survey and that title search. There’s no win-win solution.)
The economy doesn’t work that way. China can make money selling cheap goods to America, and U.S. consumers can also benefit from those low prices.
But the economy doesn’t work that way. China can make money selling cheap goods to America, and U.S. consumers can also benefit from those low prices. And conversely, a tariff on imports can hurt Chinese manufacturers while also harming American businesses.
It remains to be seen how voters will respond to all of this. Polls show a broad majority of voters are supportive of additional tariffs on China, but there’s not much evidence that they support a broad tariff on every import like Trump is proposing, especially if the Biden campaign makes clear what the effects would be.
For now, Trump has the advantage on the argument about high prices. But he’s betting it all on a risky proposal that would raise them even higher.