Why Trump’s plan to escalate tariffs has so many haters

LONDON – The US heavily taxed imports for much of its history before largely abandoning the policy, beginning in the 1930s, as government leaders embraced the idea of free trade.

High tariffs made a comeback during the 2017-2021 presidency of Donald Trump, who adopted them in an effort to revitalise American manufacturing and to counter what the United States regards as China’s unfair trade practices. Trump’s successor Joe Biden kept the trend going. 

Now, Trump,

who on Nov 5 won his bid for a second term in the White House,

says he will dramatically increase taxes on imports and put them at the centre of his economic policy.

His pledge has reignited a debate over whether tariffs are a valuable tool for competing with economic rivals or a policy weapon with a chequered past that is likely to backfire.

What is Trump proposing?

He is proposed raising tariffs to 60 per cent for goods imported from China and to 20 per cent for those brought in from the rest of the world.

The US currently imposes tariffs in those ranges and higher on select categories of goods, but to levy them at that level across the board would be a radical change.

Currently, for imported industrial goods, which make up 94 per cent of US merchandise imports by value, the country has a trade-weighted average tariff rate of 2 per cent, according to the Office of the US Trade Representative. Half of industrial goods enter the US duty free.

According to a Bloomberg Economics analysis released in October, Trump’s tariff proposals “would bring average US levies above 20 per cent, a level not seen since the early 20th century.”

Could Trump raise tariffs unilaterally?

Yes, although in some cases it would be necessary to first have a finding by one of the federal agencies that report to the president.

Through a number of statutes, Congress has empowered the US president to modify tariffs to address a variety of concerns. These include a threat to national security, a war or emergency, harms or potential harms to a US industry, and unfair trade practices by a foreign country.

While companies might try to fight higher tariffs in court, because of past deference given to presidential powers, such challenges “would face a steep uphill climb”, according to an article posted by the Centre for Strategic and International Studies.

How do tariffs work?

A tariff, also known as a duty or levy, is usually calculated as a percentage of the good’s value, but it can also be levied as a fixed amount on each item.

Tariffs can be assigned to specific product codes, such as the one for a truck chassis, or to broad categories, such as electric vehicles.

Who pays tariffs? 

Tariffs are actually paid by the importer, or an intermediary acting on the importer’s behalf, though the costs are typically passed on.

Trump argues that ultimately exporters pay for tariffs. Studies have shown the burden is more diffuse.

The foreign company that makes the product may decide to lower prices to appease the importer. Or it might spend significant sums to build a factory somewhere else to sidestep the tariff.

Or an importer – Walmart and Target are among the biggest in the US – could raise the prices consumers pay at the checkout counter.

How does China figure into all of this? 

But China’s ascension as a global economic power broke the consensus on free trade.

Admitted to the World Trade Organisation in 2001, China gained greater access to global markets even as its critics say it broke the letter and spirit of free-trade rules, for example by subsidising its industries and compelling foreign companies operating in China to part with their know-how.

A number of researchers have concluded that competition from China triggered a decline in US employment among manufacturers that faced a surge in imports.

During Trump’s first presidency, his administration imposed new tariffs on Chinese imports that were worth about US$380 billion (S$506.7 billion) in 2018 and 2019.

The Biden administration maintained those levies and raised more of them in 2024 on goods worth an additional US$18 billion.

The new enthusiasm for tariffs has spread to the European Union. It voted in early October to impose duties as high as 45 per cent on electric vehicles from China, which in turn has threatened to retaliate against European products. 

On the 2024 campaign trail, Trump argued that across-the-board import taxes would have benefits beyond defending domestic industries: They would flood the Treasury with billions in revenue, push companies that do not produce goods in the US to do so, and enable the US to extract concessions from trade allies and rivals alike.

Trump’s Democratic opponent in the election, Vice-President Kamala Harris, criticised his proposed tariff increases as a “national sales tax” that would hurt consumers. She did not articulate her own agenda on trade. 

How have tariff hikes affected the US so far? 

It can be difficult to sort through the economic effects of tariffs. They can stimulate employment by attracting investment as companies try to get around tariffs by moving factories to the taxing country. At the same time, they can provoke retaliatory tariffs that cost jobs in other parts of the economy. 

The authors of a well-regarded paper published by the National Bureau of Economic Research concluded that the Trump tariffs of 2018-2019 failed to increase jobs in the protected industries while hurting jobs in sectors targeted by retaliatory tariffs, especially agriculture. 

Economists are still untangling the inflationary effects of Trump’s initial tariffs from a much bigger shock to supply chains and economic activity that started not long after the US-China trade war began: the Covid-19 pandemic.

In February 2019, the Federal Reserve Bank of San Francisco estimated that the tariffs were adding 0.1 percentage point to consumer price inflation and 0.4 percentage point to a metric that measures the costs for businesses to invest.

Ms Erica York, senior economist at the non-partisan Tax Foundation, estimates that the Trump-Biden tariffs increase the US average annual household tax bill by US$625.

In addition, Ms York estimates that the hikes will eliminate 142,000 full-time jobs and over the long run will reduce long-run gross domestic product by 0.2 per cent on average.

Critics of Trump’s proposal to drastically increase tariffs worry that it would have the same kind of effects, at a much greater scale. 

How will US tariffs affect Singapore?

Any disruption in global trade flows is

detrimental to export-driven economies like Singapore

.

There are no detailed estimates on the impact Trump’s tariffs would have on the Singapore economy, which barely grew 1.3 per cent in 2019, the slowest pace in a decade, after the first round of the US-China trade war.

More recently, however, Singapore and some other Asean economies have witnessed a surge in foreign direct investments as many multinationals, especially semiconductor manufacturers and digital infrastructure firms, tweaked their supply chains to bypass escalating US-China trade and technology tensions. But there is no guarantee this will continue.

Trump has also pledged to crack down on tariff evasion and trade diversion, which could result in collateral damage for Asean countries and discourage Chinese manufacturing investments in the region. BLOOMBERG