Trump Tariffs Explained. Economic and Trade Analysis of Trump's Tariff

The Trump tariffs are a series of tariffs imposed during the presidency of Donald Trump as part of his economic policy. In January 2018, Trump imposed tariffs on solar panels and washing machines of 30 to 50 percent. The tariffs angered trading partners, which implemented retaliatory tariffs on U.S. goods.

Morgan Stanley estimated that Trump's tariffs on steel, aluminum, washing machines, and solar panels, as of March 2018, covered 4.1% of U.S. imports. The tariffs angered trading partners, which implemented retaliatory tariffs on U.S. goods. Canada imposed matching retaliatory tariffs on July 1, 2018. China accused the U.S. of starting a trade war and on July 6 implemented tariffs equivalent to the $34 billion tariff imposed on it by the U.S. India plans to recoup trade penalties of $241 million on $1.2 billion worth of Indian steel and aluminium. Other countries, such as Australia, are concerned of the consequences of a trade war.

The actions were poorly received by the vast majority of economists; almost 80% of 60 economists surveyed by Reuters believed that tariffs on steel and aluminum imports would be a net harm to the U.S. economy, with the rest believing that the tariffs would have little or no effect; none of the economists surveyed believed that the tariffs would benefit the U.S. economy. In July 2018, the Trump administration announced it would use a Great Depression-era program, the Commodity Credit Corporation, to pay farmers up to $12 billion. This government assistance program aims to make up a shortfall as farmers lose sales abroad due to the trade war with China, the European Union, and other states.

Trump Tariffs Background

Trump adopted his current views on trade issues in the 1980s, saying Japan and other nations were taking advantage of the United States. During the 2016 presidential campaign, Trump repeatedly favored policy proposals that renegotiate trade agreements for the United States. During a meeting with the New York Times Editorial Board in January 2016, Trump said that he would tax Chinese imports into the United States by 45%. Trump frequently criticized the North American Free Trade Agreement calling it "the worst trade deal the U.S. has ever signed." He also called Trans-Pacific Partnership "the death blow for American manufacturing" and that it would "put the interests of foreign countries above our own."

On November 21, 2016, in a video message, Trump introduced an economic strategy of "putting America first", stating that he would negotiate "fair, bilateral trade deals that bring jobs and industry back onto American shores." On January 23, 2017, three days after becoming president, Trump withdrew the United States from the politically divisive Trans-Pacific Partnership believing that the agreement would "undermine" the U.S. economy and sovereignty.

Trump has also indicated a desire to end the North American Free Trade Agreement with Canada and Mexico. His administration has renegotiated the terms of the agreement. Trump had threatened to withdraw from it if negotiations fail. He has specifically criticized the Ford Motor Co., Carrier Corporation, and Mondelez International for having operations based in Mexico. In August 2015, in response to Oreo maker Mondelez International's announcement that it would move manufacturing to Mexico, Trump said that he would boycott Oreos. The new deal increases the percentage of parts and manufacturing that must be done in North America for domestic automobiles, set a minimum wage for some workers on auto parts, and expanded access for U.S. dairy sales to Canada.

Similar to his approach to trade deals, Trump also pledged, as part of the Contract with the American Voter, to impose tariffs to discourage companies from laying off workers or relocating to other countries, through an "End the Offshoring Act". No such act has been introduced in Congress, but Trump has moved to impose tariffs on solar panels, washing machines, steel, and aluminum. The enforcement of the tariffs falls primarily within the purview of the Department of Commerce and Office of the United States Trade Representative.

Trump has repeatedly promised to lower America's trade deficit, and has argued for a renegotiation of trade deals and imposition of tariffs to that end.These efforts notwithstanding, during 2018 the trade deficit continued to increase.

In November 2018, Trump argued that the tariffs enriched the United States. He said that the United States was gaining "Billions of Dollars" from "Tariffs being charged to China." He added, "If companies don’t want to pay Tariffs, build in the U.S.A. Otherwise, lets just make our Country richer than ever before!" Fact-checkers and economists described the assertions made by Trump as false, with the Associated Press writing "Almost all economists say the president is wrong. That’s because tariffs are taxes on imports. They can cause higher prices, reduce trade among countries and hurt overall economic growth as a result."

Trump's tariffs on steel and aluminum

On March 1, 2018 Trump announced his intention to impose a 25% tariff on steel and a 10% tariff on aluminum imports. In a tweet the next day, Trump asserted, "Trade wars are good, and easy to win." On March 8, he signed an order to impose the tariffs effective after 15 days. The EU, Canada, Mexico, Australia, Argentina, Brazil and South Korea were temporarily exempted from the order under a carve-out provision. Canada, Mexico, and the EU became subject to the steel and aluminium tariffs later in an announcement on May 31, 2018.

Tariffs on the “dumping” of Steel in the United States have totally revived our Steel Industry. New and expanded plants are happening all over the U.S. We have not only saved this important industry, but created many jobs. Also, billions paid to our treasury. A BIG WIN FOR U.S.

— Donald J. Trump (@realDonaldTrump) January 28, 2019

Trump has regularly touted the steep steel and aluminum tariffs he imposed on foreign imports last year for boosting the U.S. steel industry.

The New York Times reported earlier this month that dozens of steel mills opened, restarted or made new investments last year, but noted that steel prices in the U.S. have fallen back to the same levels they were prior to the tariffs being imposed.

The news outlet cited American Iron and Steel Institute data that showed as of November, steel industry employment was 4 percent lower than it was four years ago, in part because the industry relies more on automation.

“We fully expect the players in the steel supply chain to have weaker years in 2019,” Philip Gibbs, a metals analyst at KeyBanc in Ohio, told the Times.

The president's tariffs roiled lawmakers on both sides of the aisle who expressed concerns that the policy would ultimately drive up domestic prices and hurt Americans.

Trump has regularly brushed aside those criticisms, arguing that the penalties on imports are necessary to secure improved trade deals with various countries.

Permanent exemption from the Steel Tariff

While the 25% steel tariff as a rule applies to all countries worldwide, there are nevertheless four countries that successfully negotiated a permanent exemption from the steel tariff with the Trump administration. Australian Prime Minister Malcolm Turnbull successfully lobbied President Trump to get an exemption at the 2017 G20 Hamburg summit, arguing that "[w]e do this steel that’s specialty steel. We’re the only one that produces it in the world. You’ve got to let us out. You’ve got a $40 billion trade surplus with us. We’re military allies with you. We’re in every battle with you.”

The legal basis cited in Trump's tariff order

The legal basis cited in Trump's tariff order is Section 232 of the Trade Expansion Act of 1962 which under certain circumstances allows the president to impose tariffs based on the recommendation from the U.S. Secretary of Commerce if "an article is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security." This section is rarely used, and has never been invoked since the World Trade Organization was established in 1995.

China initiated a WTO complaint against the U.S. steel and aluminum tariffs on April 9, 2018. The EU opened a similar WTO case on June 1, 2018.

On June 9, 2018, Trump tweeted a statement addressing Prime Minister of Canada Justin Trudeau in which he said that American tariffs targeting Canada "are in response to his [tariffs] of 270% on dairy!" In the tweet, Trump did not cite national security, the legal basis for implementing the tariff.

Economic and trade analysis of Trump's tariff

A survey of leading economists by the Initiative on Global Markets at the University of Chicago Booth School of Business showed a consensus that imposing new US tariffs on steel and aluminum will not improve Americans’ welfare. Economists say that the tariffs will lead to more harm than gains, as the price for steel increases, which will harm consumers and Americans working in manufacturing industries that use steel (these jobs outnumber those who work in steel-producing sectors by 80 to 1). The big winners of the tariffs are some American steel- and aluminum-producing industries; some of the producers (especially small- and middle-sized ones) who are reliant on foreign inputs may struggle as a result of the tariffs. A study of the proposal indicated that it would lead to an estimated loss of 146,000 jobs. Studies of the 2002 steel tariffs enacted by the Bush administration show that they caused more job losses than job gains. Jobs losses could be even greater if other countries retaliate against the United States with their own tariffs on various American products.

Scholars warned that the Trump administration's use of "national security" rationales (these have not been commonly used by past administrations) for the tariffs could undermine the international trading order, as other states could use the same rationales for their own tariffs. The WTO allows states to take actions necessary to ensure their national security, but this provision has been sparsely used, given that it could be abused. Whereas national security reasons were cited for the tariffs, it has been noted that tariffs primarily harm American allies, not enemies; the United States imports very little steel and aluminum from China directly. Trade experts furthermore noted that the United States already produces more than two-thirds of its own steel.

Forty-five U.S. trade associations are urging Trump not to impose tariffs on China, warning it would be "particularly harmful" to the U.S. economy and consumers.

The National Retail Federation has been vocal in its opposition of the tariffs. The NRF also launched an ad campaign with Ben Stein, who reprised his role as the economics teacher from “Ferris Bueller’s Day Off” arguing that tariffs are bad economics and hurt consumers.

General Motors announced closure of plants in Maryland, Michigan, Ohio, and Ontario, and cutting over 14,000 jobs, citing steel tariffs as a factor. Trump expressed frustration with the decision.

Domestic political response

Domestically, reactions from elected officials often varied among regional lines rather than ideological lines. The tariffs have seen widespread criticism from conservatives and Republicans. However, the Republican-controlled Congress has thus far declined to take any action to counter Trump's imposition of tariffs. Speaker Paul Ryan said that Congress would not pass any tariff legislation that Trump would veto.

Reception was mixed among Democratic officials, with Democrats from Rust Belt states voicing support for tariffs on steel and aluminum imports.

The AFL-CIO, the largest labor union in the U.S., praised Trump for the tariffs, as did Democratic Ohio Senator Sherrod Brown, who said that the action would be a boon for "steel plants across Ohio." Many congressional Republicans expressed fear that the tariffs might damage the economy or lead to retaliatory tariffs from other countries. Speaker of the House Paul Ryan and Senate Majority Leader Mitch McConnell urged Trump to rethink his proposal or to target the tariffs more narrowly so as to avoid "unintended consequences and collateral damage." House Minority Leader Nancy Pelosi, while calling for strategic and targeted actions against "trade cheaters," criticized Trump's rollout of the tariffs, calling it "chaotic" and that it was "maximizing the collateral damage to American workers, consumers and our international alliances." The proposal drew comparisons to a tariff imposed by his Republican presidential predecessor, George W. Bush; in 2002 the U.S. imposed heavy steel tariffs that were largely seen as ineffectual or even harmful to the U.S., and were withdrawn after 18 months.

On March 6, 2018, Gary Cohn, chair of the National Economic Council, announced his intention to resign; the announcement followed Trump's cancellation of a meeting with end-users of steel and aluminum that Cohn had arranged in an attempt to dissuade the president from the planned tariffs.

A March 2018 Quinnipiac University poll showed widespread disapproval of the tariffs, with only 29% of Americans agreeing with a "25% tariff on steel imports and a 10% tariff on aluminum imports" if it raised their cost of living.

Response from trade partners

China, Canada, and the European Union responded negatively to the initial announcement (which did not mention any temporary exemptions). Canada supplies 16% of U.S. demand for steel, followed by Brazil at 13%, South Korea at 10%, Mexico at 9%, and China at 2%.

Canadian retaliatory tariffs

From 2013 to 2016, Canada was the largest source of aluminum imports to the U.S.

Trump invoked national security grounds as justification for imposing tariffs on Canada. Canadian Prime Minister Justin Trudeau said that this was "absurd" and stated: "That Canada could be considered a national security risk to the United States is inconceivable...Let me be clear, these tariffs are totally unacceptable." He announced $16.6 billion in retaliatory tariffs, stating that "American people are not the target ... We hope eventually that common sense will triumph. Unfortunately the actions taken today by the United States government do not appear headed in that direction."

From July 1, 2018, Canada implemented retaliatory tariffs on U.S. imports. The value of the Canadian tariffs will match the value of the U.S. tariffs dollar-for-dollar and cover 299 U.S. goods, including steel, aluminum, and a variety of other products, including inflatable boats, yogurt, whiskies, candles, and sleeping bags.

European Union retaliatory tariffs

Jean-Claude Juncker, the president of the European Commission, condemned U.S. steel and aluminum tariffs and announced that a legal challenge at the World Trade Organization would follow. The EU filed the WTO challenge against the United States on June 1, once the tariffs took effect.

European Union retaliatory tariffs took effect on June 22, 2018, imposing tariffs on 180 types of products, over $3 billion of U.S. goods. Affected products include steel and aluminum, agricultural goods (including orange juice and cranberry juice), clothing, washing machines, cosmetics, and boats. European Commissioner for Trade Cecilia Malmström stated: "The rules of international trade, which we have developed ... with our American partners, cannot be violated without a reaction from our side. Our response is measured, proportionate and fully in line with WTO rules." Among the U.S. manufacturers affected by the EU's responsive tariffs is Harley-Davidson, which announced that it would move some of their manufacturing out of the United States.

Chinese retaliatory tariffs

China said that it will retaliate for the tariffs imposed on $50 billion of Chinese goods that came into effect on July 6. China threatened to curb imports of U.S. soybeans.

As part of the United States’ continuing response to China’s theft of American intellectual property and forced transfer of American technology, the Office of the United States Trade Representative (USTR) today released a list of approximately $200 billion worth of Chinese imports that will be subject to additional tariffs.  In accordance with the direction of President Trump, the additional tariffs will be effective starting September 24, 2018, and initially will be in the amount of 10 percent.  Starting January 1, 2019, the level of the additional tariffs will increase to 25 percent. 

In March 2018, USTR released the findings of its exhaustive Section 301 investigation that found China’s acts, policies and practices related to technology transfer, intellectual property and innovation are unreasonable and discriminatory and burden or restrict U.S. commerce.

Specifically, the Section 301 investigation revealed:

  • China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.
  • China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.
  • China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.
  • China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.

We are taking this action today as a result of the Section 301 process that the USTR has been leading for more than 12 months.  After a thorough study, the USTR concluded that China is engaged in numerous unfair policies and practices relating to United States technology and intellectual property – such as forcing United States companies to transfer technology to Chinese counterparts.  These practices plainly constitute a grave threat to the long-term health and prosperity of the United States economy.

For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies.  We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly.  But, so far, China has been unwilling to change its practices.  To counter China’s unfair practices, on June 15, I announced that the United States would impose tariffs of 25 percent on $50 billion worth of Chinese imports.  China, however, still refuses to change its practices – and indeed recently imposed new tariffs in an effort to hurt the United States economy.

Statement from the President  Issued on: 

Mexican retaliatory tariffs

In response to the imposition of U.S. tariffs, Mexico implemented retaliatory tariffs on around $3 billion worth of U.S. goods. These Mexican tariffs, which went into effect on June 5, are imposed on U.S. steel, pork, cheese, whiskey, and apples, among other goods.

Trump had imposed tariffs on solar panels

On January 23, 2018, news outlets announced that Trump had imposed tariffs on solar panels produced outside the United States. The tariffs initially start at 30% and will gradually fall to 15% in four years. The first 2.5 gigawatts of solar cells imported each year will be exempted from the tariff.

China is currently the world leader in solar panel manufacture, and has decried the tariffs. Zhong Shan, the Chinese Ministry of Commerce said in a statement, "With regard to the wrong measures taken by the United States, China will work with other W.T.O. members to resolutely defend our legitimate interests."

Environmentalists and animal rights advocates have expressed concern that the new tariffs will hurt the growth of sustainable energy and the species which are on the endangered list due to climate change.

Office of the U.S. Trade Representative announced tariffs on washing machines

On January 23, 2018, in conjunction with the tariffs placed on solar panels, the Office of the U.S. Trade Representative announced tariffs on washing machines. According to the U.S. International Trade Commission (ITC), imports of large residential washers increased "steadily" from 2012 to 2016, and that domestic producers' financial performance "declined precipitously". In the first year, the tariffs start at 20% for the first 1.2 million units of imported finished washers, and all subsequent washers within that year will have a 50% tariff. By the third year initial tariff will go down to 16-40%, following the same pattern.

The tariffs came after a petition was filed by Whirlpool, a U.S.-based washing machine manufacturer facing tough competition from LG Electronics and Samsung both based in South Korea.

In 2016, China exported $425 million worth of washers to the United States, followed by Mexico with $240 million, and South Korean companies $130 million. Samsung and LG are among the top exporters of washers to the United States. Two weeks before the tariff announcement, Samsung had moved its production of washing machines to a new plant in South Carolina. In response Samsung said U.S. consumers will "pay more, with fewer choices." Mexican officials said they would respond to the tariffs during the ongoing NAFTA renegotiations.

United States Trade Representative (USTR) apply tariffs of $50 billion on Chinese goods

On March 22, 2018, Trump signed a memorandum under the Section 301 of the Trade Act of 1974, instructing the United States Trade Representative (USTR) to apply tariffs of $50 billion on Chinese goods. Trump stated that the tariffs would be imposed due to Chinese theft of U.S intellectual property. Trump said that his planned tariffs on Chinese imports would make the United States "a much stronger, much richer nation."However, the steps toward imposing the tariffs led to increased concerns of a global trade war.

The Dow Jones Industrial Average fell 724 points, or 2.9%, after the tariffs were announced due to concerns over a trade war. Corporations that traded with China, such as Caterpillar Inc.and Boeing suffered large losses in their stock price.

In response, the Ministry of Commerce of the People's Republic of China announced plans to implement its own tariffs on 128 U.S. products. 120 of those products, such as fruit and wine, will be taxed at a 15% duty while the remaining 8 products, including pork, will receive a 25% tariff. China implemented their tariffs on April 2, 2018.

On April 3, 2018, the U.S. Trade Representative's office published an initial list of 1,300+ Chinese goods to impose levies upon, including products like flat-screen televisions, weapons, satellites, medical devices, aircraft parts and batteries. Chinese Ambassador Cui Tiankai responded by warning the US that they may fight back, saying "We have done the utmost to avoid this kind of situation, but if the other side makes the wrong choice, then we have no alternative but to fight back."

On April 4, 2018, China's Customs Tariff Commission of the State Council decided to announce a plan of additional tariffs of 25% on 106 items of products including automobiles, airplanes, and soybeans. Soybeans are the top U.S. agricultural export to China.

The increased tit-for-tat tariff announcements stoked fears that the two countries are inching closer to a trade war. On April 4, 2018, President Trump responded to speculation tweeting: "We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!" The next day Trump directed the USTR to consider $100 billion in additional tariffs.

On May 9, 2018, China cancelled soybean orders exported from United States to China. Zhang Xiaoping, Chinese director for the U.S. Soybean Export Council, said that Chinese buyers simply stopped buying from the U.S.

On June 15, Donald Trump released a list of $34 billion of Chinese goods to face a 25% tariff, starting on July 6. Another list with $16 billion of Chinese goods was released, with an implementation date of August 23.

On July 10, the United States Trade Representative, in reaction to China's retaliatory tariffs that took effect July 6, requested comments, gave notice of public hearings and issued a proposed list of Chinese products amounting to an annual trade value of about $200 billion that would be subjected to an additional 10% in duties on top of what those imported articles would normally pay.

In 2018 China ended its domestic ownership rules for auto companies and financial institutions. The rules required that auto companies and financial institutions in China be at least 50 percent owned by Chinese companies. The change was seen as benefitting U.S. auto companies including Tesla.

Changes to the bilateral United States–Korea Free Trade Agreement

On March 28, 2018 the United States and South Korea announced major changes to the bilateral United States–Korea Free Trade Agreement (KORUS FTA) in response to the numerous tariffs and the proposed North Korean-United States diplomatic meeting. The 25 percent tariff on South Korean trucks will be extended until 2041, adding twenty years to the current 2021 target phase out date. No South Korean auto manufacturer exports trucks to the United States. The United States exempted South Korea from its steel tariffs, but imposed an import quota of about 2.68 million tonnes. South Korea was temporarily exempted from aluminum tariffs as well, but the exemption was removed effective May 1, 2018.

Proposed tariffs

Automobiles
During the campaign, Trump said he would impose tariffs — in the range of 15 to 35% — on companies that move their operations to Mexico. Trump proposed a 35% tariff on "every car, every truck and every part manufactured in Ford's Mexico plant that comes across the border." Tariffs at that level would be far higher than the international norms (which are around 2.67% for the U.S. and most other advanced economies and under 10% for most developing countries).

Donald Trump favors up to 25% of tariffs for imported cars. In December 2018 the POTUS met the CEOs of Volkswagen Herbert Diess and Daimler Dieter Zetsche.

After the European Union threatened to impose retaliatory tariffs should a tariff on steel and aluminum be imposed, on March 3, 2018 Trump countered with a threat to impose tariffs on European car manufacturers.

References:

[1] Statement from the President https://www.whitehouse.gov/briefings-statements/statement-from-the-president-4/

[2] USTR Finalizes Tariffs on $200 Billion of Chinese Imports in Response to China’s Unfair Trade Practices https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/september/ustr-finalizes-tariffs-200

[3] USTR Issues Tariffs on Chinese Products in Response to Unfair Trade Practices https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/june/ustr-issues-tariffs-chinese-products

[4]  Statement By U.S. Trade Representative Robert Lighthizer on Section 301 Action https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/july/statement-us-trade-representative

[5] Trump Steel Tariffs Bring Hope, Prosperity Back to Granite City https://www.whitehouse.gov/articles/trump-steel-tariffs-bring-hope-prosperity-back-granite-city/

[6] Statement from the President Regarding Trade with China https://www.whitehouse.gov/briefings-statements/statement-president-regarding-trade-china-2/

[7] Section 232 Tariffs on Aluminum and Steel https://www.cbp.gov/trade/programs-administration/entry-summary/232-tariffs-aluminum-and-steel

[8] INSTAPOLL: TRUMP'S TARIFFS https://hice.house.gov/forms/form/?ID=27

[9] Feinstein, Harris to Trump: Rethink Escalating Tariffs with China https://www.feinstein.senate.gov/public/index.cfm/press-releases?ID=88C0836C-BBA8-4D7B-904E-6247EB669F05

[10] Tariff Get past, current, and future U.S. tariff rates in multiple formats. https://dataweb.usitc.gov/tariff

[11] Trump’s China tariffs explained https://share.america.gov/trumps-china-tariffs-explained/

[12] USDA Announces Details of Assistance for Farmers Impacted by Unjustified Retaliation https://www.usda.gov/media/press-releases/2018/08/27/usda-announces-details-assistance-farmers-impacted-unjustified

[13] Auditor General DePasquale Says Trump’s Hardwood Tariffs Could Put 45,000 Pennsylvanians Out of Work https://www.paauditor.gov/press-releases/auditor-general-depasquale-says-trump-s-hardwood-tariffs-could-put-45-000-pennsylvanians-out-of-work

[14] Trade Wars and Tariffs https://www.commerce.wa.gov/directors-update/update-trade-wars-and-tariffs/

[15] Section 232 Investigation on the Effect of Imports of Steel on U.S. National Security https://www.commerce.gov/section-232-investigation-effect-imports-steel-us-national-security