The Trump administration has increased tariffs on imports from China. What will this mean for U.S. consumers and companies, as well as for the U.S. economy? To understand the implications of the tariffs, I interviewed Bryan Riley, director of the National Taxpayer Union Foundation's Free Trade Initiative.
Stuart Anderson: What action did the Trump administration take on tariffs against imports from China and are there more such actions to come?
Bryan Riley: The Trump administration just increased tariffs on roughly $200 billion in imports from China from 10% to 25%. It is threatening to extend this tariff to another $325 billion in imports unless the United States and China are able to reach some kind of deal.
Anderson: Do you expect China to retaliate?
Riley: In 2018, Maria Bartiromo asked Peter Navarro, President Trump’s trade advisor, that same question. His response: “I don't believe any country is going to retaliate.”
Well, he was slightly off. The Congressional Budget Office reported that other countries retaliated with tariffs affecting $134 billion in U.S. exports. So the White House was off by $134 billion.
Last year the National Taxpayer Union released a letter signed by more than 1,100 economists, including 15 Nobel laureates, urging the President not to impose new tariffs. One of the things they warned was that “Such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods.” Of course, that’s exactly what happened. China has already pledged to impose additional retaliatory measures against the newest batch of U.S. tariffs.
Anderson: Can you place the tariff actions by the Trump administration in historical perspective?
Riley: The Trump administration’s tariff actions are a radical departure from the policies of just about every U.S. president, Republican and Democrat alike, from FDR to Obama. After World War II, the United States led efforts to reduce trade barriers, both as a way to promote economic prosperity and to encourage peaceful international relations.
President John F. Kennedy observed, “We must reduce our own tariffs if we hope to reduce tariffs abroad.” In contrast, the Trump administration has argued that its tariff increases are just tools designed to reduce foreign tariffs. Well, it’s sure hasn’t worked that way so far. For the first time in decades, foreign barriers to U.S. exports are increasing instead of decreasing, and this is entirely a response to the Trump administration’s tariffs.
Anderson: Is Donald Trump correct that China pays the costs of the tariffs?
Riley: U.S. taxpayers pay for the tariffs. Imagine if the government put a 25% sales tax on everything. Of course, consumers would wind up paying more. Similarly, when President Trump puts a 25% tariff on imports from China, U.S. consumers pay the price. Many recent economic studies have confirmed this. A report from the Centre for Economic Policy Research released earlier this year concluded: “Overall, using standard economic methods, we find that the full incidence of the tariff falls on domestic consumers.”
Anderson: What do you estimate will be the impact of the tariffs on U.S. consumers?
Riley: The Trump administration has contended that tariffs don’t really hurt consumers because the costs are spread across the economy. Commerce Secretary Wilbur Ross even said the tariffs are “no big deal” for this very reason. But the costs add up. The tariffs that have currently been imposed have erased about one-fourth of the tax cuts Americans were supposed to get under the Tax Cuts and Jobs Act over the next five years.
It’s not just consumers who are paying more. The tariffs increase the cost of imported inputs used by U.S. manufacturers. So the tariffs hit consumers in the pocketbook, make U.S. companies less competitive and subject exporters to foreign retaliation. It’s a lose-lose-lose for Americans.
Anderson: What do you think will be the impact on U.S. companies and the economy overall?
Riley: We are fortunate to have a strong, resilient economy. But outside of the White House, you are more likely to find an astronomer who says the sun revolves around the earth than you are to find an economist who thinks these tariffs will do anything but weaken the U.S. economy.
President Ronald Reagan once compared trade wars to the pie fights in Hollywood comedies. “Everything and everybody just gets messier and messier. The difference here is that it's not funny. It's tragic,” he said. The big risk is that these “temporary” tariffs become permanent, the trade war continues to escalate and we are unable to unwind the damage that has been done.
Certainly with the Trump administration so far, the attitude seems to be that if the tariffs aren’t working like they were supposed to, just slap on more tariffs. At some point that’s got to change, or a lot of innocent people across the country are going to be hurt.
