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Donald Trump has said his trade policies will be a way to protect the United States from exploitation.
But by applying basic tariffs to virtually all foreign goods, he is launching a “war on trade itself,” says Alan William Wolf. I have written For the Peterson Institute for International Economics.
Republican candidate Trump has made tariffs a central pillar of his future trade policy, proposing a flat 10% tariff on all imports entering the US. For Chinese products, Trump has called for tariffs as high as 60%.
Still, before the US embraces this level of protectionism, the left-leaning think tank said it might be wise to look at history: blanket tariffs are not an entirely untested phenomenon.
Something similar happened at the start of the Great Depression, when struggling American farmers called for taxes on foreign imports.
that is Tariff Act of 1930But the law was far more ambitious than originally conceived: a wide range of industries, not just agriculture, were given new protections, and import tariffs increased by an average of 47 percent.
The global economy struck back almost immediately. Around a dozen countries retaliated with their own restrictive measures before the bill even took effect. Britain followed suit a year later, imposing tariffs of up to 50%, Wolf said.
“Economists agree that high tariffs widened and deepened the Great Depression, which pushed American unemployment to 25 percent and nearly destroyed democracy,” the distinguished visiting scholar wrote.
Currently, U.S. tariffs average 3%, a far cry from the extreme levels of nearly a century ago, but that could change with an attempt at full protectionism if Trump returns to office.
He added that while that may not mean much to consumers who have become desensitized to talk of high tariffs and warnings of trade tensions, a sudden increase in tariffs would have a real impact on Americans.
Another study by the Peterson Institute estimated that Trump’s proposed tax increases could cost consumers $500 billion a year, or 2% of U.S. GDP. Another estimate said the tariffs would cost households an extra $1,500 a year.
Others, including Harvard economist Kenneth Rogoff, have also warned about the inflationary impact.
Wolf’s warnings of a trade war are not unique, however, as other experts have said such a conflict is a possibility regardless of who the president is.
At least, that is increasingly likely between the United States and China, as advanced manufacturing in China has accelerated dramatically. Increased production was supposed to help stimulate the Chinese economy, but Beijing now has a surplus of manufactured goods that it needs to get rid of.
“China needs to ramp up its export engine,” China Beige Book CEO Leland Miller said in March. “That’s going to create a lot of problems globally and politically, and that’s why I think we’re going to have a trade war next year.”
Indeed, the US appears to have already responded, after President Biden announced a series of tariffs on Chinese high-tech exports earlier this month.
But as tough as Biden’s new restrictions may seem, they still don’t compare to Trump’s proposals, Waller said.
For example, he said, a new 50% tariff on Chinese-made semiconductors may seem extreme, but it covers just under $1 billion in trade per year — by comparison, the United States imports six times that amount every month.
“Unlike the Biden tariffs, the Trump plan is to raise tariffs on every product from every country. This is not just America First, it’s America unilateral,” Wolf wrote.