RUTH SUNDERLAND: There will be no tariffs Trumps for Donald
One theory about Donald Trump is that the more outrageous the statements he makes, the less impact they have – a verbal equivalent of what economists call diminishing returns.
Yet his statements about tariffs still have shock value. We must also be careful not to imagine that his threats are too ridiculous to be taken seriously.
In his presidential campaign, he talked about tariffs of 10 to 20 percent on imported goods, rising to 60 percent for China, and 25 percent for Mexico and Canada, unless they are in line with his desire to curb illegal immigration and lay. medications.
The president-elect denied US media reports that he might water down his plans and has stepped up his rhetoric.
His chest-thumping included a threat to impose tariffs on Denmark “at a very high level” if the country resists his attempts to take over Greenland, an objective he has not ruled out by using military force.
If Trump is as good as his word, this could have unintended consequences. Danish pharmaceutical giant Novo Nordisk makes weight-loss sticks and up to 30 percent of US hearing aid imports come from Denmark, so Americans could become deafer and fatter if these products end up in the net.
Diminishing Returns: One theory about Donald Trump is that the more outrageous the statements he makes, the less impact they have
The purpose of tariffs is simple: to punish companies that import goods or components by forcing them to pay a percentage of the price to the government.
The idea is to create a shift to domestic producers instead, protecting American jobs, rebuilding the manufacturing industry and boosting the economy. Trump claims this will generate large revenues that can be used for tax cuts and social spending.
The word “tariff,” he says, is beautiful. Maybe, but there are ugly consequences.
If domestic producers cannot fill the gap left by imports, consumers will ultimately have to pay more as companies pass on some or all of their higher costs.
That drives up inflation, which in turn keeps interest rates high. Tariffs could also put pressure on exports as companies focus on production for the domestic market.
They create inefficiencies: a major advantage of free trade is that each country focuses on what it is good at. Then there is retaliation.
A 2020 report found that Trump spent more taxpayer money in his previous term on bailouts for farmers harmed by Chinese retaliatory tariffs than on building naval ships or maintaining the nuclear arsenal.
Trump has weaponized tariffs and is acting like a bully. What is less noted is that Biden has retained most of the measures imposed from the first Trump administration and announced more on certain Chinese goods in May last year.
The Tax Foundation, a respected American think tank, estimated in a report last summer that the Trump-Biden tariffs resulted in a reduction in American employment by 142,000 full-time jobs.
It estimates that the proposed new tariffs – without considering retaliation – could result in the loss of another 344,000.
Tariffs can have a certain blunt appeal. Some may think it’s tempting to follow through on Trump’s threat to hit John Deere, the tractor manufacturer, with a 200 percent tariff on plans to move production to Mexico.
There might have been cheers if the British government had done the same when, for example, James Dyson moved production to Asia – but that would disappear if the costs of vacuum cleaners and hair styling aids rose.
Tariffs are no more of a magic wand to create a fairer and stronger economy in the US than Labor’s tax increases are here in Britain.
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