Trump's tariff wars could wipe out a chunk of tax cut benefits
The trade war between the U.S. and China escalated on Monday, and new research shows the effects of President Trump’s tariff policy could be meaningfully detrimental to the U.S. economy.
As of Friday, the Trump administration raised the tariff rate imposed on $200 billion worth of Chinese goods to 25 percent, from 10 percent. In retaliation, Beijing announced on Monday that it would raise tariffs on about $60 billion worth of American goods. The tit-for-tat rattled global equity markets.
Trump has also threatened to impose an additional 25 percent tariffs on $325 billion worth of imports from China.
Meanwhile, the U.S. has implemented a number of tariffs on products from other countries as a negotiating tool – including everything from steel and aluminum, to washing machines.
According to analysis from the Tax Foundation, all of the tariffs imposed so far by the U.S. government would reduce long-run GDP by 0.21 percent – or $52.2 billion. Wages would fall by 0.13 percent, and 161,751 full-time jobs would be eliminated. About $71.9 billion in revenue would be raised.
If all threatened tariffs – including the additional levies on goods from China and potential auto tariffs – were put into effect that would shave another $112.2 billion off of U.S. GDP.
However, the effects are even worse when countries’ retaliatory efforts are taken into account. It’s not just China that has imposed tariffs on U.S. goods – Mexico, Canada, India and Turkey are among the countries that have retaliatory measures in place – with some planning increases, too. Other countries, including the European Union, have plans to impose new ones.
Taking into account all current tariffs, and all threatened tariffs – from both the U.S. and foreign countries – the Tax Foundation found that long-run U.S. GDP would be reduced by 0.75 percent – or $187.9 billion – offsetting nearly 50 percent of the benefits that the group expected to result from the Tax Cuts and Jobs Act. Including, 582,604 full-time jobs that would be lost.
Trump, however, maintains that the tariffs will do greater damage to China’s economy. On Monday, he Tweeted, that consumers could avoid the effects of tariffs by buying goods from a “non-tariffed” country. He also said there would be “nobody left in China to do business with” and suggested the situation would only get worse for their economy.
Trump has received support from a number of lawmakers from the other side of the aisle regarding his China policy, including Senate Minority Leader Chuck Schumer, D-N.Y., who tweeted a message of encouragement for the president last week.
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On Sunday, Sen. Lindsey Graham, R-S.C., told FOX Business’ Maria Bartiromo that tariffs are “tools that bring China to the table,” adding that he fully stands by the president’s decision.
Talks between the two countries are expected to continue, though there are currently no additional negotiations scheduled.