Sunday, March 3, 2024

New taxes on imports and decoupling with China: President Trump’s 2025 trade agenda

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Former President Donald Trump plans to aggressively expand his first-term efforts to overturn U.S. trade policy if he returns to power in 2025. This includes imposing new taxes on “most imports” that risk alienating allies and sparking a global trade war. .

The Biden administration has maintained the tariffs President Trump imposed on China, but Trump has gone far beyond that in trying to tear apart the world’s two largest economies, which exchanged about $758 billion in goods and services last year. will do.

President Trump will “introduce aggressive new restrictions on Chinese ownership” of a wide range of assets in the United States, ban Americans from investing in China, and phase out imports of Chinese goods in key categories such as electronics. He said it would be completely banned. steel and pharmaceuticals.

At a recent rally in Durham, New Hampshire, President Trump declared, “When China and every other country abuses us, we will impose severe penalties.”

Robert Lighthizer, the Trump administration’s top trade negotiator and likely to play a key role in his second term, gave the most extensive and detailed explanation yet of Trump’s trade agenda in an interview. . The Trump campaign referred questions about this article to Lighthizer, and campaign officials spoke by phone.

Essentially, the purpose of President Trump’s trade policy is to move the United States away from integration with the global economy and move the country toward more self-reliance, meaning that it produces a greater proportion of what it consumes and has one-on-one relationships with other countries. It is the exercise of that power through transactions. Countries.

Mr. Trump, who calls himself a “tariff man,” has taken steps in that direction as president, including imposing tariffs on a wide range of imports, obstructing the World Trade Organization and starting a trade war with China. . If elected, he plans bolder interventions aimed at closing the trade deficit and strengthening manufacturing, which could have a significant impact on jobs, prices, diplomatic relations and the global trading system. .

His plan, which he describes as a “substantial pro-American overhaul of tax and trade policy,” does not reflect the health of the economy, given that the unemployment rate has fallen to 3.7% and inflation has cooled significantly year-on-year. It would be like a high-stakes gamble with sex. The post-pandemic surge is creating about 200,000 jobs a month and pushing the stock market near record highs.

Trade experts with more traditional economic views are warning against President Trump’s plan. Daniel M. Price, international economic adviser to President George W. Bush, called the plan “insane and absurd.” He said the cost would be borne by U.S. consumers and producers and the plan risked alienating allies.

“The last time President Trump imposed abusive tariffs on allies for national security reasons, many major trading partners, such as Japan and South Korea, thought that President Trump would soon come to his senses, and the U.S. “We have refrained from retaliating against exports from China,” Price said. . “They won’t indulge in such fantasies this time.”

Assessing the merits of Trump’s trade vision is complicated by the potential for multiple ramifications and by Trump’s desire for long-term change. However, many economic studies conclude that the tariffs he imposed as president caused more damage to American society than the benefits they generated.

Lighthizer has rejected studies critical of President Trump’s tariffs, saying they are biased in favor of free trade and arguing that inflation has remained stable under his administration. He also said that while efficiency, profits and low prices are important, creating more manufacturing jobs for Americans without degrees should be a priority.

“If you’re just looking for efficiency, it’s better for someone to own a third 40-inch TV and be at risk of losing their job than to work with just two. If you think it’s better, you disagree with me,” Lighthizer said. “There is a group of people who think that consumption is the end. In my opinion, production is the end, and so are safe and happy communities. We should be willing to pay that price.”

universal price list

The most globally far-reaching of President Trump’s 2025 trade policy plans is to impose so-called universal basic tariffs, which would mean imposing new taxes on most imports.

The Trump campaign did not say how high the tariffs would be. In an interview with Fox Business in August, President Trump threw out the 10% figure and said “I think it should ring a wake-up call” for the U.S. economy.

Trump has been vague on other details. In his statement, he did not explain whether he envisaged universal tariffs as a new floor or in addition to an existing floor. For example, if imports are currently taxed at 5%, will that tax rate increase to 10% or 15%? Lighthizer said it’s the latter. .

President Trump also did not say whether new tariffs would apply to imports from the roughly 20 countries that have free trade agreements with the United States. That includes Canada and Mexico, which together account for nearly a fifth of the overall U.S. trade deficit in goods, and which the Trump administration has announced will replace the North American Free Trade Agreement with a near-tariff-free trade deal. was renegotiated.

President Trump has also not said whether he believes he can unilaterally impose significant new tariffs under current law or whether he believes they would require Congressional approval.

Irrespective of its legal authority, such a universal tariff policy would create a confusing spiral of profits and losses. On the other hand, some domestic manufacturing will rise as domestic manufacturers of competing products may raise prices and expand production. That’s President Trump’s focus. “We will soon become a manufacturing powerhouse like the world has never seen,” he promised in a campaign video.

As a textbook economics problem, there may be some downsides. That would pass on prices to consumers in the form of higher taxes, which would fall more heavily on poor people because they spend much of their income on goods.

This policy could also lead to downward pressure on other domestic manufacturing industries. Producers who buy raw materials from abroad end up paying higher costs, making their products less competitive in the world market. Retaliatory tariffs would reduce demand for U.S. exports.

Decoupling from China

Trump also said he would go further in imposing “a series of bold reforms to completely eliminate dependence on China in all critical areas.” In 2022, the United States imported $536.3 billion of goods from China and exported $154 billion of goods to China.

Among other things, President Trump announced a “four-year phase-out of imports of all essential goods from China, from electronics to steel to pharmaceuticals,” along with new rules to prevent U.S. companies from investing in China. He said he would impose a plan. Prevent China from purchasing U.S. assets.

Still, Trump hedged his risk by saying he would allow “all investments that clearly serve the interests of the United States,” without providing specifics.

The Biden administration has also moved to impose tougher restrictions on economic interactions with China, but their scope is more limited. The government has banned the export of certain technologies with military use to China, and President Biden signed an order in August banning new U.S. investment in Chinese companies seeking to develop things like semiconductors and quantum computers.

President Trump has now gone further and proposed revoking China’s “most-favored nation” trading status. This would mean an end to the permanent normal trade relations and tariff reductions that the United States granted China after it joined the World Trade Organization in 2001. The commission released a bipartisan report this month calling for similar measures.

That would significantly disrupt the U.S. economy, according to a study commissioned by the U.S.-China Business Council and published last month by Oxford Economics. They estimated that the resulting tariff increases would cost the U.S. economy $1.6 trillion and 744,000 jobs over five years.

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