Trump’s tariff plans likely to increase inflation

San José, CA – On Monday, July 15, Donald Trump was officially nominated as the Republican Party candidate for president. Given his lead, albeit slim, in the polls over President Biden, it would be wise to look at Trump’s economic policies.

A central part of Trump’s economic plans is to raise tariffs, or taxes on imports. He is calling for 10% across the board and 60% for imports from China. Trump proudly calls himself “Tariff Man” and holds up President William McKinley as a role model for raising tariffs. McKinley was congressperson and president who was a strong advocate for tariffs in the late 1900s.

Tariffs, like other taxes on goods and services such as sales taxes, raise the prices of products and will cause even higher inflation. There are many goods, such as bananas and coffee, that cannot be produced in the United States and consumers will just pay higher prices. Other products, such as cell phones, are no longer made in the United States and will also go up in price.

Tariffs on imported goods that are also made in the United States, like steel, could lead to U.S. producers simply raising prices to fatten their bottom line. This is what happened when Trump put 25% tariffs on steel – companies that made steel in the United States raised their prices by 22% and hardly increased production at all. This will further increase prices and inflation.

China was the second largest exporter to the United States in 2023, after Canada and just ahead of Mexico. About one out of nine imports to the United States comes from China. A 60% tariff increase would cause a huge jump in prices of imports from China. The main result would be for companies to shift production to other countries such as Bangladesh and India. This would lead to more costly imports, as many component would still made in China, but then have to be shipped to, then and reassembled or packaged in, third countries before finally getting to the United States.

Besides the impact on inflation, higher tariffs would invite retaliation from other countries. During his first term as president, Trump tweeted, “Trade wars are good and easy to win.” But like hot wars, trade wars are only easy to win if a strong country attacks a very small and weak country. But during Trump’s first term, both the European Union and China retaliated, causing losses for industries and businesses that relied on exports, such as farming. While government aid offset much of these losses, it meant that U.S. taxpayers were paying a second time for U.S. tariffs.

Behind Trump’s support for much higher tariffs is his view that trade deficits mean that the United States is “losing money” to other countries. However, the U.S. is not giving money to other countries, but in fact buying more from other countries than we sell to them. Further, this money comes back to the United States as other countries buy U.S. bonds, stocks and businesses.

A big factor that contributes both to trade deficits and job losses in the United States is U.S. corporations exporting capital and jobs to other countries. A prime example of this is Apple, which once manufactured here in the United States, but first offshored production to Ireland and then China, producing almost none of its products in the United States.

Trump does not target these corporations and the billionaires who own them. He wants to extend the tax cuts that corporations and the rich received in his 2017 tax bill. In return, more and more billionaires are lining up to give big bucks to the Trump campaign.

#SanJoseCA #CA #CapitalismAndEconomy #Trump #Tarrifs #Inflation