President-elect Donald Trump has referred to “tariff” as “the most beautiful word in the dictionary.” During his campaign and since his election, Trump has promised widespread tariff increases on foreign imports to help solve a range of America’s challenges, including trade imbalances, the government debt and the decline in American manufacturing. Opponents disagree. They argue that any sudden tariff increases will raise consumer prices and destabilize the world economy. And they urge Trump to seek congressional agreement regarding tariff decisions rather than impose them on his own.
As a practical matter, Trump may not require significant input from Congress in making tariff decisions. Over the past several decades, Congress has delegated significant tariff authority to the White House — including the right to negotiate trade deals to meet general trade objectives — with the president’s tariff decisions only subject to an up-or-down simple majority floor vote.
Americans currently pay an average tariff of 2% on imported goods. Those charges generate annual tariff revenue of $80 billion for the U.S. government. Trump wants more — a lot more — and his most favorite tariff targets are China, Mexico and Canada.
During his first presidential term, Trump negotiated the USMCA — the free trade agreement between the U.S., Mexico and Canada — which imposed tariffs on steel, aluminum and solar panels and Trump separately imposed tariffs on most Chinese goods. This time around, Trump has proposed a universal tariff, not just for certain industries or countries, but a baseline tax on all goods entering the United States.
Although the amount of the new tariffs is not yet set, Trump has talked about a rate of 10% but has said it could be more. And he wants an additional tariff on Chinese goods of at least 60%. Those numbers are staggering and would take the U.S. from a low-tariff country to a high-tariff country in one fell swoop.
The pro-tariff calculus is fairly simple. The theory is that domestic manufacturers and farmers should benefit from competitive imported products being more expensive, which should drive consumers to buy American-made goods and help create jobs and grow the economy. But international trade is a two-way street and a rise in U.S. tariffs will almost certainly result in higher foreign tariffs on U.S. imports, shutting down those established avenues of revenue for serious players in the U.S. economy.
Beyond that, the greatest concern about any increase in tariffs is that the U.S. consumer — rather than the foreign manufacturer — will end up having to pay for the tariffs through higher prices, since any tariff increases will be passed on to the ultimate consumer.
The tariff debate will play out over the next several weeks and into the new Trump administration. While there are clear benefits to the imposition of tariffs up to a point, they become a problem if they are too steep. As noted by one economic think tank, tariffs are like medicine: “Given in moderation and for the right purpose, they can help heal. Given in excess, they become a poison.”
The watchword is “moderation.” We just hope that word appears in Trump’s dictionary. ■
