As Trump returns to White House, tariffs threat looms large

The return of Donald Trump, who had railed at the loss of US jobs to overseas competitors, has brought the spotlight again on his proposed tariffs.The first Trump administration from 2016 used tariffs as a key tool to negotiate better deals from its trading partners. Now, Trump, who on November 5 won his bid for a second term, says he will dramatically increase taxes on imports and put them at the centre of his economic policy.Trump has proposed raising tariffs to 60% for goods imported from China and to 20% 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% of US merchandise imports by value, the country has a trade-weighted average tariff rate of 2%, 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%, a level not seen since the early 20th century.”Trump can raise tariffs unilaterally although in some cases it would be necessary to first have a finding by one of the federal agencies that report to the president.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.Admitted to the WTO in 2001, China gained greater access to global markets even as its critics say it broke the letter and spirit of free-trade rules.China’s trade surplus is on track to hit a fresh record this year, aggravating an imbalance in global commerce that risks provoking Trump.The difference between Chinese exports and imports is set to reach almost $1tn if it continues to widen at the same pace as it has in the year to date, according to Bloomberg calculations.During Trump’s first presidency, his administration imposed new tariffs on Chinese imports that were worth about $380bn in 2018 and 2019. The Biden administration maintained those levies and raised more of them this year on goods worth an additional $18bn.The European Union voted in early October to impose duties as high as 45% on electric vehicles from China, which in turn has threatened to retaliate against European products.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.Trump’s tariff proposals could reduce American consumers’ spending power between $46bn and $78bn each year, according to a National Retail Federation study.With arguably the world’s most powerful job in hand, President-elect Trump has a duty to do. While he has to bring a deeply-divided nation together, he should also demonstrate to the world that he really is seeking partnership and common ground.Make no mistake, in a globalised world, no country can ensure quality growth with inward-looking isolation and restrictive trade protection.