Trump favors huge new tariffs. What are they, and how do they work?

WASHINGTON — Donald Trump has identified what he sees as a one-size-fits-all solution to what ails America: impose massive new tariffs on foreign goods entering the United States.

The former president and current Republican candidate claims that tariffs — essentially import taxes — will create more factory jobs, shrink the federal deficit, lower food prices and allow the government to subsidize child care.

He even says that tariffs can promote world peace.

“Tariffs are the best thing ever invented,” Trump said this month in Flint, Michigan.

As president, Trump enthusiastically imposed tariffs — targeting imported solar panels, steel, aluminum and virtually everything from China.

“Tariff Man,” he called himself.

This time he goes much further: He has proposed a 60% tariff on goods from China – and a tariff of up to 20% on everything else the United States imports.

This week he upped the ante even higher. To punish machinery manufacturer John Deere for its plans to move some production to Mexico, Trump promised to tax everything Deere tried to export back to the United States – at 200%.

And he threatened to slap 100% tariffs on Mexican-made goods, a move that would risk blowing up a trade deal Trump’s own administration had negotiated with Canada and Mexico.

Mainstream economists are generally skeptical of tariffs, viewing them as a largely inefficient way for governments to raise money and promote prosperity. They are especially alarmed by Trump’s latest proposed tariffs.

This week, a report from the Peterson Institute for International Economics concluded that Trump’s main tariff proposals — assuming the targeted countries retaliate with their own tariffs — would cut the U.S. economy by more than a percentage point and increase inflation by 2026 would increase by 2 percentage points. next year than it otherwise would have been.

Vice President Kamala Harris has dismissed Trump’s tariff threats as not serious. Her campaign has cited a report showing that Trump’s 20% universal rate would cost a typical family nearly $4,000 a year.

But the Biden-Harris administration itself has a penchant for tariffs. It kept the taxes Trump imposed on $360 billion of Chinese goods. And it imposed a 100% tariff on Chinese electric vehicles.

The United States has gradually retreated in recent years from its post-World War II role of promoting global free trade and lower tariffs. This shift has been a response to job losses in U.S. manufacturing, widely blamed on unfettered trade booms and an increasingly aggressive China.

They are typically charged as a percentage of the price a buyer pays a foreign seller. In the United States, tariffs are collected by Customs and Border Protection agents at 328 ports of entry across the country.

Fare rates range from passenger cars (2.5%) to golf shoes (6%). Rates may be lower for countries with which the United States has trade agreements. For example, most goods can move tariff-free between the United States, Mexico and Canada due to Trump’s US-Mexico-Canada trade deal.

Trump emphasizes that the tariffs are paid by foreign countries. In fact, it is importers – American companies – who pay tariffs, and the money goes to the US Treasury Department. These companies, in turn, typically pass on their higher costs to their customers in the form of higher prices. That’s why economists say consumers usually end up footing the bill for the tariffs.

Still, tariffs can hurt foreign countries by making their products more expensive and harder to sell abroad. Yang Zhou, an economist at Fudan University in Shanghai, concluded in a study that Trump’s tariffs on Chinese goods caused more than three times as much damage to the Chinese economy as to the US economy.

By raising the price of imports, tariffs can protect homegrown producers. They can also serve to punish foreign countries for unfair trade practices, such as subsidizing their exporters or dumping products at unfairly low prices.

Before the federal income tax was introduced in 1913, tariffs were a major source of government revenue. From 1790 to 1860, tariffs represented 90% of federal revenues, according to Douglas Irwin, a Dartmouth College economist who has studied the history of trade policy.

Tariffs fell out of favor as global trade grew after World War II. The government needed much larger revenue streams to finance its activities.

In the fiscal year ending September 30, the government is expected to collect $81.4 billion in fees and charges. That’s small next to the $2.5 trillion expected to come from individual income taxes and the $1.7 trillion from Social Security and Medicare taxes.

Yet Trump wants to pursue a fiscal policy that resembles that of the 19th century.

He has argued that tariffs on agricultural imports could lower food prices by helping American farmers. In fact, tariffs on imported food products would almost certainly increase food prices by limiting choice for consumers and competition for U.S. producers.

Tariffs can also be used to pressure other countries on issues related to trade or otherwise. In 2019, for example, Trump used the threat of tariffs as leverage to convince Mexico to crack down on waves of Central American migrants crossing Mexican territory on their way to the United States.

Trump even sees tariffs as a way to prevent wars.

“I can do it with a phone call,” he said at an August meeting in North Carolina.

If another country tries to start a war, he said he would issue a threat:

“We are going to charge you 100% rates. And suddenly the president, the prime minister, the dictator or whoever is running the country says to me, ‘Sir, we are not going to war.’ ”

Tariffs increase costs for businesses and consumers who rely on imports. They are also likely to provoke retaliation.

The European Union, for example, has rolled back Trump’s tariffs on steel and aluminum by taxing American products from bourbon to Harley-Davidson motorcycles. Similarly, China responded to Trump’s trade war by slapping tariffs on U.S. goods, including soybeans and pork, in a calculated drive to hurt its supporters in farm country.

A study by economists from the Massachusetts Institute of Technology, the University of Zurich, Harvard and the World Bank concluded that Trump’s tariffs failed to restore jobs in the American heartland. The tariffs “neither increased nor decreased U.S. employment,” even though they were intended to protect jobs, the study found.

Despite Trump’s 2018 taxes on imported steel, for example, the number of jobs at U.S. steel mills has barely changed, remaining around 140,000. By comparison, Walmart alone employs 1.6 million people in the United States.

Worse, retaliatory taxes levied on U.S. goods by China and other countries had “negative effects on employment,” especially for farmers, the study found. These retaliatory tariffs were only partially offset by billions in government aid that Trump doled out to farmers. The Trump tariffs have also damaged businesses that relied on targeted imports.

Although Trump’s trade war failed as a policy, it succeeded as a policy. The survey found that support for Trump and Republican congressional candidates rose in areas most exposed to the tariffs — the industrial Midwest and manufacturing-rich Southern states such as North Carolina and Tennessee.