In my last post, I said that excessive tariffs would be harmful to the economy.  President Trump has now announced his new tariff plan. They are not only excessive but poorly planned as well.

Consider:

• First of all, it is true that the US has roughly a one trillion dollar trade deficit with the rest of the world and also has lost manufacturing jobs. But Trump’s new protectionist age will harm American exports and erode U.S. economic leadership, both of which make the U.S. stronger and more prosperous.

  

• Trump’s tariffs are a historic tax increase of over 2%, higher than the tax increase caused by the Smoot-Hawley tariffs of 1930 that contributed to the Great Depression.
• Existing U.S. tariffs of 2.3% in 2023 are comparable to those of other rich countries: 2.7% for the European Union, 1.9% for Japan, 3.4% for Canada, 3% for China, and 1.7% for Switzerland.  In addition, the U.S. has selective high tariffs on a few particular imports as do other countries.
• Does it make sense to put 10% across-the-board tariffs on Australia and the United Kingdom which have trade deficits with the U.S?
• Trump hits Vietnam with a 46% tariff, which means that Nike will have to rethink where to make low-margin shoes. Does it make sense for the U.S. to invest in low-tech shoe-making rather than high-tech AI?
• In general, the trade balance reflects many factors, including national comparative advantage.  We sell things we are better at –  services and high-tech goods – and buy things that can be made more cheaply elsewhere.

  

• Hopefully, Trump will pay attention to this week’s 10% stock market decline, and reverse course before major damage is done.

Conclusion.  The latest round of Trump tariffs is excessive and poorly planned.  Let’s hope that he has the good sense to back off before a major worldwide recession is created.

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