Tariffs Are Trump's Tool to Consolidate His Hold on Power
They won't only be injurious to the U.S. economy but also to its liberal democracy because he will use them to reward friends and punish enemies
Donald Trump has precious few rigidly held political beliefs—but one of his constants throughout his entire time in presidential politics is his inflexible commitment to tariffs. He has nicknamed himself “Tariff Man,” and hasn’t waited until Inauguration Day to live up to the name. On Nov. 25, he announced that he will be slapping tariffs of 25% on all goods from Mexico and Canada until they stop the flow of drugs and migrants across our borders. He also vowed to raise tariffs on Chinese products by 10%—a mere soft opening to a tariff hike against the Asian giant that Trump suggested could get as high as 60%. For the next four years, tariffs are set to play a feature role in the Trump administration’s domestic and foreign policy. Welcome to the anti-trade presidency.
Tariffs: Trump’s Cure-All
It’s hard to overstate Trump’s inordinate fondness for taxes on imports: “Tariffs are the greatest thing ever invented,” he proclaimed during the campaign. “To me, the most beautiful word in the dictionary is ‘tariff,’” he said. Why such fondness for economic barriers imposed on the outside world?
In many ways, tariffs are the perfect realization of Trump’s animating political instinct: that the world is always taking advantage of the United States and only by imposing a significant barrier—physical (“build the wall”) or economic (tariffs)—can the U.S. reassert itself and truly fulfill its national interest.
Trump’s enthusiasm for tariffs flows from his view of them as a kind of universal remedy, as a miracle cure for America’s every ill. He uses them to try to beat concessions out of other governments. In the recent Mexico and Canada cases, he explicitly framed them as punitive measures intended to incentivize those governments to help him achieve other aspects of his domestic agenda. But given his zero-sum view of economic relations where one side’s gain is the other’s loss, he also conceives of import taxes as a tool to achieve more straightforward economic ends: boosting growth, safeguarding jobs, fortifying industries, raising revenue, facilitating income tax cuts. For example, a key reason Trump likes tariffs is that he erroneously believes imports subtract from GDP. But tariffs are also a key tool in his foreign policy arsenal: he views them as a way to hobble foreign rivals.
In Trump’s mind, it is foreigners, not American consumers, who will ultimately pay the tariff toll. Against all economic evidence, he has denied that implementing such a tariff-heavy regime will result in higher prices domestically. His tariff plan, he said during the campaign, “is going to have a massive ... positive effect.” He pledged duties of 10 or 20% on all imports—and upwards of 60% on China. But really, the sky’s the limit. “If I’m going to be president of this country I’m going to put a 100, 200, 2,000% tariff,” he boasted.
His nominee for secretary of commerce, Howard Lutnick, is fully on board. “Tariffs are an amazing tool [for] the president to use,” Lutnick said in October, arguing that we should “use tariffs to build in America. If we want to make it in America, tariff it, or if we’re competing with it, tariff it.”
Trump’s Terrible Tariffs
The promise of Trump’s tariffs rests on the risible notion that Americans are best served by sealing ourselves off from the rest of the world and paying each other far higher prices than we need to. His tariff agenda is equal parts economic superstition and historical ignorance.
Tariffs would increase the prices consumers pay—a proposition that gets something close to unanimous agreement among economists. “We find that imposing a 20% across-the-board tariff combined with a 60% tariff on China would cost a typical U.S. household in the middle of the income distribution more than $2,600 a year,” reports the Peterson Institute for International Economics. Executives for Walmart, Lowe’s, and Steve Madden have said they would most likely raise prices on affected items if Trump follows through. AutoZone CEO Philipe Daniel left no doubt: “If we get tariffs, we will pass those tariff costs back to the consumers.” The National Retail Federation, reviewing Trump’s campaign promises, said consumers should expect to pay at least $46 billion more each year for apparel, appliances, footwear, toys, and other goods.
Often forgotten is that tariffs don’t just push up prices on imported goods; they also allow domestic producers of similar goods to raise their prices. That’s not a bug but a feature: The whole point of protectionism is to improve the profitability of U.S. companies that face foreign competition by forcing consumers to pay more. The grim outlook is not just idle speculation; it’s based on a wealth of experience. A study of the duties Trump placed on washing machines during his first term found that prices, which had been declining, rose by $86 per unit.
Consumers would not be the only casualties. Some 45% of U.S. imports consist of “intermediate inputs”—components of products built here. “When you buy a Jeep Patriot manufactured in Illinois, at least 17% of the cost goes to parts made in other countries,” notes the Federal Reserve Bank of San Francisco. By raising the costs of these components, Trump’s tariffs would raise the cost of making things in America and disrupt supply chains. One study discovered that for the industries most exposed to the tariffs, they served as the equivalent of a 4% tax on exports, which means consumers abroad will be less able to afford U.S. goods, leading to economic retrenchment.
Can job gains offset these other losses? Trump, like every protectionist, imagines that imposing levies on imports will benefit American workers by keeping their employers profitable and them employed. The evidence for that claim ranges from slim to none. His washing machine tariffs saved some 1,800 jobs—which may sound significant until you realize that the U.S. economy creates that many jobs every seven hours. But the cost to consumers of saving each of those jobs was wildly disproportionate: about $817,000 per job. That means consumers had that much money less to spend on other products, which not only reduced their welfare but also diminished jobs in other sectors. Trump’s levies on solar panels, however, led to a direct loss of jobs in that industry itself—some 20,000 in all—because it raised the costs of inputs for U.S. manufacturers.
The direct damage from throwing up these barriers to trade is just part of the story. Governments in other countries have an inconvenient tendency to respond to U.S. tariffs on their goods by slapping tariffs on U.S. goods—as allowed by the rules of the World Trade Organization. Under Trump, China got revenge by curbing purchases of soybeans, beef, pork, wheat, corn, and sorghum. Farm organizations warn that if he follows through on his 2024 campaign promises, exports of soybeans could drop by 52% and corn by 84%. So severe was the impact in Trump’s first term that the Department of Agriculture decided to pay out some $28 billion in offsetting subsidies to farmers who ended up as collateral damage. He claimed victory in this trade war by making a deal in which Beijing agreed to buy an extra $200 billion in U.S. goods. How much more did it end up buying? Zero.
Trump’s Second Tariff Regime Would Be Worse Than His First
The trade war during Trump’s first administration was relatively contained. But the broader, higher tariffs he envisions for his second term would be a much bigger deal—and a much bigger threat to our trading partners. “What keeps a lot of economists up at night when contemplating this scenario is that it could easily lead to a spiraling round of retaliation, much like we saw in the 1930s when the U.S. levied tariffs and other countries followed suit,” says UCLA economist Kimberly Clausing. That earlier frenzy of protectionism, the economic equivalent of a circular firing squad, exacerbated the Great Depression by stifling international commerce. It would be hazardous to assume the experience can’t be repeated.
Trump habitually decries the U.S. trade deficit, particularly with China. But the trade deficit actually rose by 36% under him. Trump’s complaint, however, betrays a fundamental misunderstanding of how international commerce works. We consistently run a capital account surplus, because foreigners invest far more in U.S. assets, including Treasury bills, than Americans invest abroad. To do that, they need dollars. They get those by selling us more goods and services than they buy. It’s a simple accounting truism that the capital surplus and the trade deficit have to be the same amount. As the late conservative economist Herbert Stein explained, “A deficit in the current account is always accompanied by an equal surplus in the capital account, and vice versa.” No amount of protectionism will reduce the trade deficit as long as we continue to attract so much foreign investment—which, by the way, is a boon to the U.S. economy and American workers.
During the 2024 campaign, Trump even mused about abolishing income taxes and making up the revenue with tariffs, recalling the 19th century, when import levies provided nearly all the funding for the federal government. “In the 1890s, our country was probably the wealthiest it ever was because it was a system of tariffs,” Trump said, highlighting William McKinley’s tariffs as the cause. It’s a crackpot notion: at the moment, tariffs account for some $80 billion a year, a tiny sliver of federal receipts, while individual income taxes provide $2.4 trillion, or about half of all revenue. There is no way to increase tariffs enough to generate such a huge amount of money—beyond a certain level, tariffs would choke off the flow of imports, collecting little if any revenue.
Trump’s focus on restricting foreign goods isn’t merely economically suspect—it also advances his alarming authoritarian agenda. The greater his involvement in setting the terms of trade with other countries, the more weapons he has to reward pals, enrich his family, and punish those who don’t obediently fall into line. Waivers from his tariffs can be used to get what he wants from companies that import.
Bloomberg reported the following finding from a recent study: “Public companies whose executives donated to Republican candidates had a higher chance of winning exclusions from President-elect Donald Trump’s first-term tariffs on China, while those that gave to Democrats saw their odds fall.” No wonder that hedge fund tycoon Ken Griffin has said, “I am gravely concerned that the rise of tariffs puts us on a slippery slope towards crony capitalism.”
This is the very essence of crony capitalism. But that’s not the gravest peril. In his first term, Trump frequently used social media to target corporations that incurred his wrath and extol those that kowtowed to him. By manipulating tariffs, and by granting or withholding waivers, he could easily coerce capitulation from companies affected by them. It’s another weapon for an aspiring authoritarian.
No one is likely to understand the potency of this weapon better than Trump. In his hands, the president’s role in trade could be ruthlessly exploited for purposes having nothing to do with trade. He loves tariffs partly because he is so utterly clueless about trade and economics. But he also loves them for the power they promise. “Tariff Man” may sound like a superhero—but he’s more the Joker than Batman.
© The UnPopulist, 2024
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Thank you! This is the first time I have read ANYONE get to the real point of Trump's tariff agenda which is his personal power and exercising transactional dominance over countries and American corporations to do things entirely unrelated to matters of trade policy.
There is one more reason that I believe Trump favors a tariff system. It shifts the burden of funding the government from businesses to consumers without calling it a tax. Or at least that’s what he would like us to believe. I’m still waiting for Mexico to pay for the wall.