Trump’s tariffs in his first term did little to alter the economy, but this time could be different
WASHINGTON — Donald Trump enjoyed using tariffs on foreign goods during his first presidency. But their impact was barely noticeable in the economy as a whole, even if the aftershocks were evident in specific sectors.
The records show that they never fully delivered on his promised factory jobs. Nor did they cause the avalanche of inflation that critics feared.
This time, however, from him tariff threats can be different.
The president-elect is talking about going much bigger — on a potential scale that creates more uncertainty about whether he will do what he says and what the consequences might be.
“There’s going to be a lot more tariffs, I mean, he’s been pretty clear about it,” said Michael Stumo, the CEO of Coalition for a Prosperous America, a group that supports import taxes to help domestic manufacturing.
The president-elect posted on social media Monday that on his first day in office he would impose 25% tariffs on all goods imported from Mexico and Canada until those countries satisfactorily control illegal immigration and the flow of illegal drugs such as fentanyl into the United States will stop. .
Those tariffs could essentially blow up the North American trade pact that Trump’s team negotiated during his first term. But on Wednesday, Trump posted on social media that he had spoken with Mexican President Claudia Sheinbaum and that she had agreed to stop unauthorized migration across the border into the United States.
Trump also reported Monday that Chinese imports would face additional 10% tariffs until Beijing cracks down on the production of materials used in making fentanyl.
Business groups quickly warned against it rapidly escalating inflation. House Democrats have drafted legislation to strip away a president’s ability to unilaterally implement such drastic tariffs, warning they would likely lead to higher prices for cars, shoes, housing and groceries.
Sheinbaum initially said Wednesday that her administration was already drawing up a list of possible retaliatory tariffs “if the situation gets to that point.” In the same way the Canadian government has also begun exploring retaliatory tariffs if Trump takes action.
House Democrats introduced a bill Tuesday that would require congressional approval before a president can impose tariffs over claims of a national emergency, a largely symbolic move given Republicans’ coming control of both the House of Representatives and the Senate. Senate.
“This legislation would allow Congress to limit this sweeping emergency authority and establish the necessary congressional oversight before any president – Democrat or Republican – could indiscriminately increase costs to the American people through tariffs.” , said Rep. Suzan DelBene, D-Wash.
But for Trump, tariffs are now a proven tool that appears less politically controversial, even if the mandate he received in the November election was largely to curb inflation.
The tariffs he imposed on China during his first term were continued by President Joe Biden, a Democrat who even expanded tariffs and restrictions on the world’s second-largest economy. Biden administration officials looked at eliminating Trump’s tariffs to reduce inflationary pressures but found they were unlikely to help significantly.
Tariffs were “so new and unique that they shocked everyone in 2017,” Stumo said, but they are now seen as part of the policy toolbox by the United States and other countries.
Trump imposed tariffs solar panels and washing machines In early 2018, there were developments that might have pushed prices higher in those sectors, even as they also overlapped with plans to open washing machine factories in Tennessee and South Carolina.
His administration also imposed tariffs on steel and aluminum, including against allies. He then raised tariffs on China, sparking a trade dispute and a limited 2020 deal that failed to do so the promised Chinese purchases of American goods to produce.
Still, the dispute changed relations with China, as more and more U.S. companies sought alternative suppliers in other countries. Economic research also found that the United States may have sacrificed some of its “soft power” as the Chinese population began watching fewer American films.
The Federal Reserve kept inflation at about the same level, but factory construction spending never rose to the point of sustaining a sustained increase in manufacturing jobs. Separate economic research found that the tariff war with China did nothing economically for the communities affected by offshoring, but did help Trump and Republicans in those communities politically.
When Trump first became president in 2017, the federal government collected $34.6 billion in customs duties, fees and fees. That amount more than doubled under Trump to $70.8 billion in 2019, according to data from the Office of Management and Budget.
While that amount seems meaningful, it was relatively small compared to the economy as a whole. According to the Bureau of Economic Analysis, America’s gross domestic product now stands at $29.3 trillion. Total tariffs collected in the United States would be less than 0.3% of GDP.
The new tariffs that Trump is now imposing are dramatically larger and could have much greater consequences.
If Mexico, Canada and China were to face the additional tariffs Trump has proposed on all goods imported into the United States, that could be roughly equivalent to $266 billion in tax collections, a figure that does not assume any disruption to the trade or retaliation of other countries. to land. The costs of these taxes would likely be borne by American households, importers, and domestic and foreign businesses in the form of higher prices or lower profits.
Former Biden administration officials said they worried that companies could piggyback on Trump’s tariffs — if they are imposed — as a reason to raise their prices. This would mirror many companies’ price increases in 2022, which were made possible by Russia’s invasion of Ukraine, which pushed up food and energy prices and gave companies cover to further raise their own prices.
“I’m very concerned about the total arbitrary tariffs on more than just China — that it’s giving companies cover to drive up prices,” said Jen Harris, a former Biden White House official who is now director of the Economy and Society Initiative from the William and Flora Hewlett Foundation.
But what Trump hasn’t really laid out is what could lead him to roll back the tariffs and declare a victory. What he is creating instead with his tariff threats is a sense of uncertainty as companies and countries wait for the details to figure out what this could all mean.
“We know the key economic policy priorities of the incoming Trump administration, but we don’t know how or when they will be addressed,” said Greg Daco, chief US economist at EY-Parthenon.
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AP writer Mark Stevenson contributed to this report from Mexico City.