The Economic Impact of Trump’s Tariffs

Written by Christopher Dang, Economic Development Research Intern |  What is the real impact of Trump’s Tariffs?

In the name of national defense, President Trump has threatened the world with heavy tariffs and his adamant stance on enforcing tariffs has been stirring controversy across the nation. Although Trump’s suggestion that tariffs will be the solution for the American economy and its safety, it may cause more harm than good.

Trump recently took Twitter by storm announcing his intentions of renegotiating the North American Free Trade Agreement (NAFTA). For various reasons, this is quite worrisome on many fronts. Mexico and Canada have responded with their own threats of tariffs, further perpetuating the ongoing trade wars. Ironically, the renegotiation of NAFTA largely affects those who helped elect President Trump.

The American farmer has been one of Trump’s target demographic, and a large contribution to farmers’ business is NAFTA. NAFTA has played an integral role in the US agriculture industry, with Canada and Mexico who purchase our exports of grain, dairy, and livestock.

In an attempt for the Trump administration to compensate American farmers, they have made plans to offer up to $12 billion in aid to farmers affected by tariffs. Although $12 billion may sound like a substantial amount, it only serves as a short-term solution to the problems that the tariffs will cause. The farming industry in America has already been facing a steady decline, and the trade war will only serve as an additional burden.

 

To make matters worse for the American farmer, Trump has placed ad valorem tariffs on steel and aluminum of 25% and 10% respectively. You might be thinking, “wait…steel and aluminum? How does that effect farmers?” History has shown that farmers are often the unintended victim of tariffs being placed on products that they may not even be their own. Trump’s steel and aluminum tariffs have caused an uproar from Canada, Mexico, China, and the EU. They have threatened the US with retaliation over the metal tariffs. The reaction from our neighboring trade partners will potentially take the form of reducing the import of cheese, beef, milk, and various grains, a large part of the business conducted by American farmers. This means that the price of the produce we all know and love, could potentially rise and increase our cost of living in the US.

The steel and aluminum tariffs have residual effects on the US agriculture industry, which inevitably effects domestic prices for consumers, but what makes things particularly troubling for American consumers, is that the price of a new car could jump up by $7,000.

A study conducted by the Peterson Institute for International Economics highlighted the potential price hikes due to the tariffs. Every single car sold in the US is made with a portion of foreign components and will be faced with a metal tariff. Additionally, in the name of ‘national security’, Trump has threatened to also impose a 20 or 25 percent tariff on auto imports. The study conduct by Peterson did not include Canada in the tariff calculation because the available data did not distinguish between American and Canadian automobile content, which means these price hikes can be an understatement. 

Trump’s renegotiation of NAFTA, along with the tit-for-tat threats going on with China, has many people on the edge. These tariffs not only affect the agriculture and automobile industry in the US, but  many tertiary industries as well.  From the metal tariffs alone, there have been estimates that it could yield a net loss of 470,000 jobs over a two year period. If the Trump Administration goes through with the automotive tariffs, the EU has threatened to fire back with $300 billion worth of tariffs.

The overall effects of these tariffs are not yet set in stone, but many economists and politicians predict that it will do more harm than good for everyone involved.