In April, Donald Trump proposed new $60 billion in wide-ranging new import tariffs that shook the global economy to its core. He also announced his intention to restore American manufacturing and employment to the United States. To do this, he placed high tariffs on all kinds of goods. The idea of an impending announcement shocked leaders and economists in the immediate, who saw what could be the potential for far-reaching financial panic.
In reaction to the immediate political fallout from his announcement, Trump put the vast majority of the tariffs on hold. Shocking though it was, this decision followed a pattern as countries were taking desperate steps to stave off expected dreadful economic effects of his policies. Trump wasn’t afraid to let them know what he expected. He declared that countries need to negotiate new trading arrangements with the U.S. by a quickly approaching deadline, or be subjected to cripplingly high tariffs.
When Trump slapped a baseline 10% tariff on virtually all British goods. Our other trading partners such as the European Union (EU) and Japan dealt with much higher tariffs – a staggering 15%! Not surprisingly, the president took a victory lap on the sheer size of the trade agreement negotiated with the EU. He’s touting it as the biggest win for his administration’s trade agenda.
By the end of July, Trump had declared victory about a dozen trade deals. These deals were missing the specific pay-fors that typically would have been written into their past negotiations. This change in approach has caused advocates, researchers, and policymakers alike to wonder about the long-term effects of these unilateral agreements. Trump accepted Mexico’s extension of negotiations. This signals his openness to continue to pursue productive conversations rather than imposing drastic measures right away.
The economic costs of almost none of Trump’s tariffs have been reasonable. According to a report by Peterson Institute for International Economics, so far this year, these tariffs have brought in over $100 billion in revenue for the U.S. government. This dramatic increase has transformed receipts to government coffers like never before. It’s shot up from about 2% at the start of the year to upwards of 17% today. This new source of revenue is portrayed as an early win for Trump’s new administration — at least in the short term. It begs the question of how these dollars would be used.
Third, Trump proposed floating rebate checks to offset the financial burden that tariffs are sure to place on lower-income Americans. This concept touches on ways to bring comfort and encouragement to survivors. This proposal would at least help to lower some of the downstream costs produced by increased prices due to tariffs. The announcement fits neatly into his months-long story of providing wins to American workers and businesses.
During the past few months, Trump has taken credit for what he’s called a string of trade victories. He has recently announced some notable deals with trading partners. Meanwhile, he’s applied massive tariffs on other countries that haven’t capitulated to his demands. This pro-active approach would be a radical and long overdue departure from U.S. trade policy. It has ignited adulation and uproar from across every conceivable sector.
Critics warn that an overly unilateral approach will lead to retaliatory actions from countries on the receiving end. This would certainly risk sparking a trade war and shaking global markets even more. Supporters argue that Trump’s tough approach is just what’s needed to fix unfair markets on the global stage.
With an end of year deadline for negotiations, stakeholders at home and abroad are watching closely. The results of these trade negotiations have the potential to redefine America’s economic future and its relationships with some of our most important trading partners.