Former US President and Republican candidate for the US presidential elections, Donald Trump, if he wins, intends to return industries to the United States and reduce the cost of production, relying on customs duties to strengthen state coffers, but these plans may collide with a more complex reality.
As the presidential election approaches in November, economic experts warn that the former president’s policies may lead to higher prices for consumers and reflect negatively on international trade, without the United States reaping definite benefits from them.
The stated goal of Trump’s policies is to rely on tariffs to increase state revenues and use this as a card to pressure countries such as China, while encouraging companies to return their production centers to the United States.
“After 75 years, other countries will finally have to pay us back for everything we’ve done for the world,” Trump said during his television debate with his Democratic rival Kamala Harris in September. “Tax fees, in my opinion, are the most beautiful words,” he announced last week during an election rally in Michigan.
Customs duties
Trump intends to increase customs duties on all imports by 10 to 20 percent, depending on the products, up to 60 percent for Chinese imports and up to 200 percent for cars made in Mexico.
Regarding customs duties as well, Trump intends to extend the tax cuts approved during his term, which will expire soon, and to additionally reduce taxes on corporate revenues.
However, the Tax Foundation studies office warned that these planned customs duties may “dissipate the benefits of its tax cuts without compensating for the losses in terms of tax revenues.”
Bernard Yaros, an economist at Oxford Economics, said that such a policy could cause inflation to increase by about 0.6 percentage points or even more if the fees were implemented on short notice.
Companies have previously suffered from increased tariffs approved by Trump during his term, but the planned increase may be greater.
Kyle Handley, professor of economics at the University of California in San Diego, explained that “companies saw the prices of their imports increasing, and they adapted,” but “if they approve a generalized increase of 10 to 20%, it is unlikely that this will not be reflected in prices in stores,” and it is unlikely that it will succeed. Trump plans to return production to the United States in the near future.
Trump points out that his previous tax increases had no impact on inflation, but Handley considered that the pressures they caused on supply chains would ultimately be equivalent to a 2 to 4 percent increase in customs duties on imports, and several companies admitted to Agence France-Presse that they were forced as a result. So to increase their prices.
A 2019 study published in the Journal of Economic Perspectives estimated that the previous year, tariffs cost American consumers $3.2 billion a month.
Trade with China
Trump’s plan, if implemented, could reduce the volume of trade between the United States and China by 70%, with hundreds of billions of dollars in trade redirected or completely canceled.
According to Adam Slater of Oxford Economics, previous tax cuts in 2018 led to the redirection of Chinese exports to other markets, raising “additional protectionist pressures in countries that received more low-priced Chinese products.”
The office explained that US trade exchanges may decrease by 10% and be more concentrated on North American countries and other trading partners.
The Peterson Institute reported that other measures in Trump’s plan, such as repealing the “Permanent Normal Trade Relations” law that Beijing enjoyed in 2000, could lead to an increase in inflation by 0.4 percentage points. However, Trump pledged to eliminate inflation, an issue that tops voters’ concerns, promising in particular to cut energy bills by half since his first year in the White House.
