Polls leading up to the presidential election revealed how voters’ key issues influenced their vote: 80% of individuals who expressed the greatest concern for the economy voted for Donald Trump. Though the President-elect had an ambiguous economic plan during his campaign, there was one thing he promised the American people: to impose tariffs on China, Mexico and Canada to ideally lower taxes. Before we assess the validity of this claim, let’s talk about what a “tariff” actually is.
In simple terms, a tariff is a tax imposed on goods that enter the country–paid upfront by the domestic company or firm importing the product. For instance, a car imported from China to the United States worth $50,000 would cost $55,000 with a 10% tariff; this tax would be paid by the domestic company, sent directly to the U.S. government. Last year, tariffs created $80 billion in government revenue, roughly 2% of America’s total tax earnings. It may seem like tariffs force large companies to pay a surplus of taxes that ultimately benefit the American people, but the reality is more complex. To compensate for tariffs, large firms often increase the cost of their goods.
As exhibited in Trump’s first term, tariffs harm American consumers more often than not. In 2018, Trump imposed 12% tariffs on washing machines, equivalent to $86 per unit. That year, Americans paid $1.5 billion extra for said product. The bipartisan Peterson Institute for International Economics estimates that Trump’s new tariff agenda will lower disposable incomes for the American people, with the effect ranging from 4% for America’s poorest to 2% for America’s top earners. Moreover, the think tank asserts Trump’s tariffs will lose the average middle-class household roughly $1,700 per year going forward.
Trump continues to justify his planned tariffs through claiming that they would protect and create U.S. domestic jobs. On the campaign trail, the President-elect asserted that “Under [his] plan, American workers will no longer be worried about losing [their] jobs to foreign nations, instead, foreign nations will be worried about losing their jobs to America.” Yet, researchers who studied tariffs under Trump’s first term found no positive effect in employment. Trump levied a 25% tariff on steel in 2018. By 2020, the total number of jobs in the U.S. steel sector was 80,000–still lower than the 84,000 it had been in 2018. Furthermore, economists have found evidence that Trump’s imposed tariffs negatively impacted employment in other sectors that relied on the import of steel, such as the agricultural machinery manufacturer Deere & Co.
Trump regularly criticizes America’s trade deficit: the difference between the value of all goods the country imports versus the value of those it exports. In 2016, just before Trump’s inauguration, the total goods and services deficit was $480 billion. By 2020, it rose to $653 billion. Trump’s first term tariffs proved ineffective in closing the U.S. trade deficit. Economics argue this was partly because the former president’s tariffs increased the relative value of the dollar, reducing demand for foreign currencies in trade. Consequently, American goods became more expensive and less competitive on the international market. Moreover, Trump’s tariff plan failed because other countries used loopholes that allowed them to bypass Trump’s tariffs. For instance, manufacturers in China sold their product to Vietnam or Cambodia (countries Trump had not imposed tariffs on). Products then made their way to the United States.
Trump’s history reveals that tariffs do not lower taxes. In fact, they harm the American people. Ironically, the vast majority of those who prioritized the country’s economy voted for the President-elect. Let’s see what happens.
