With less than a year before the 2024 presidential election, Trump is bringing tariffs back into the spotlight. This issue has long been a source of contentious division among economists. He’s right in proposing to use tariffs as a tool to strengthen the U.S. economy and support American producers. He announced his readiness to impose unilateral tariffs on multiple trading partners within two weeks, specifically targeting Mexico, China, and Canada. As recently as 2024, these countries represented a staggering 42% of all U.S. imports. Mexico was clearly the biggest exporter of all of them.
The economic impacts of tariffs have been a source of disagreement and schadenfreude, on both sides, among economists for years. Economists have two competing views on how they should be used. To this end, proponents will often claim that tariffs are necessary to protect domestic industries and create jobs. Others caution that they will increase costs to consumers and stress US global diplomacy. This unusual debate is occurring on the backdrop of Trump’s ambitious plans and the upcoming election.
Understanding Tariffs and Their Impact
Tariffs, otherwise known as customs duties, are taxes imposed on the imports of specific goods or types of goods. They act as a monetary deterrent that can shape competitive trade patterns between nations. By charging these taxes, governments seek to shield local businesses from overseas competition while raising funds.
Supporters of tariffs contend that they are necessary to protect American jobs and domestic industries from unfair foreign competition. They argue that by raising the prices of imports, tariffs spur the consumer to buy products manufactured in the U.S. This, in turn, can lead to economic growth and job creation here at home.
Opponents of a tariff program argue that the costs and dangers of such a program outweigh its benefits. And without action, they caution that increasing prices for goods we import will be transferred to consumers. As a consequence, we are all likely to pay more for common goods. There is fear that retaliatory actions from countries impacted by the tariffs might raise tensions and sour long-standing trading partnerships.
Trump’s Strategy: Focus on Key Partners
In his recent announcement, Trump emphasized a targeted approach, focusing on three major trading partners: Mexico, China, and Canada. 2024 heralded a milestone for Mexico, becoming not only the top supplier of all U.S. imports. In turn, it added an impressive $466.6 billion, according to the U.S. Census Bureau.
During his administration, Trump negotiated trade deals simultaneously with all three countries while in office. The forthcoming election appears to be influencing his renewed commitment to tariffs as a means of rallying support from American voters who prioritize domestic economic growth.
Trade imbalances are a big concern Trump focuses on partners to address large trade imbalances. In doing so, he wants to keep certain sectors of the U.S. economy safe. This strategic move dovetails with his larger agenda of putting American interests first in trade negotiations around the world.
Economic Considerations Ahead of the Election
With the election just months away, Trump’s approach to tariffs could significantly impact both his political fortunes and the broader economic landscape. His focus on tariffs resonates with voters who are concerned about job security and the fate of American industries facing foreign competition.
These intended and unintended consequences of imposing tariffs are complex and multifaceted. In fact, economists have cautioned that tariffs could provide short-term benefits to targeted industries. They have the potential to impose lasting burdens on the U.S. economy as a whole. Higher prices for manufactured goods could put pressure on consumer spending, which will be needed to support the economic recovery led by the consumer.
In addition to this, as Trump gets ready to roll out these tariffs, there’s the fear of retaliation from trading partners. Countries affected by these actions would likely retaliate with their own tariffs. This retaliation would lead to a needless and reckless trade war, bringing severe economic harm both at home and around the world.