WASHINGTON (AP) — Donald Trump enjoyed using tariffs on foreign goods during his first presidency. But their impact was barely noticeable in the economy as a whole, even if the aftershocks were evident in specific sectors.
The records show that they never fully delivered on his promised factory jobs. Nor did they cause the avalanche of inflation that critics feared.
This time, however, his tariff threats could be different.
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The president-elect is talking about going much bigger — on a potential scale that creates more uncertainty about whether he will do what he says and what the consequences might be.
“There’s going to be a lot more tariffs, I mean, he’s been pretty clear about it,” said Michael Stumo, the CEO of Coalition for a Prosperous America, a group that supports import taxes to help domestic manufacturing.
The president-elect posted on social media Monday that on his first day in office he would impose 25% tariffs on all goods imported from Mexico and Canada until those countries satisfactorily control illegal immigration and the flow of illegal drugs such as fentanyl into the United States will stop. .
Those tariffs could essentially blow up the North American trade pact that Trump’s team negotiated during his first term.
Chinese imports would face additional 10% tariffs until Beijing cracks down on production of materials used in making fentanyl, Trump said.
Democrats and business groups are warning of the risks of Trump’s tariff threats
Business groups quickly warned of rapidly escalating inflation, while Mexican President Claudia Sheinbaum said she would counter the move with tariffs on U.S. products. House Democrats have drafted legislation to strip away a president’s ability to unilaterally implement such drastic tariffs, warning they would likely lead to higher prices for cars, shoes, housing and groceries.
Sheinbaum said Wednesday that her administration is already drawing up a list of possible retaliatory tariffs “if the situation reaches that point.”
“The economics department is preparing it,” Sheinbaum said. “If there are tariffs, Mexico would increase tariffs. It is a technical challenge that would also benefit Mexico,” she said, suggesting her country would impose targeted tariffs on US goods in sensitive areas.
House Democrats introduced a bill Tuesday that would require congressional approval before a president can impose tariffs over claims of a national emergency, a largely symbolic move given Republicans’ coming control of both the House of Representatives and the Senate. Senate.
“This legislation would allow Congress to limit this sweeping emergency authority and establish the necessary congressional oversight before any president – Democrat or Republican – could indiscriminately increase costs to the American people through tariffs.” , said Rep. Suzan DelBene, D-Wash.
But for Trump, tariffs are now a proven tool that appears less politically controversial, even if the mandate he received in the November election was largely to curb inflation.
The tariffs he imposed on China during his first term were continued by President Joe Biden, a Democrat who even expanded tariffs and restrictions on the world’s second-largest economy. Biden administration officials looked at eliminating Trump’s tariffs to reduce inflationary pressures but found they were unlikely to help significantly.
The rates were “so new and unique that it shocked everyone in 2017,” Stumo said, but ultimately they were somewhat modest.
Trump’s first term of tariffs had a modest impact on the economy
Trump imposed tariffs on solar panels and washing machines in early 2018, measures that may have pushed up prices in those sectors, even as they also overlapped with plans to open washing machine factories in Tennessee and South Carolina.
His administration also imposed tariffs on steel and aluminum, including against allies. He then raised tariffs on China, sparking a trade dispute and a limited 2020 deal that failed to deliver promised Chinese purchases of U.S. goods.
Still, the dispute changed relations with China, as more and more U.S. companies sought alternative suppliers in other countries. Economic research has also shown that the United States may have sacrificed some of its “soft power” as the Chinese population began watching fewer American films.
The Federal Reserve kept inflation at about the same level, but factory construction spending never increased to the extent that there was a sustained increase in manufacturing jobs. Separate economic research has found that the tariff war with China has done nothing economically for the communities affected by offshoring, but has helped Trump and Republicans in those communities politically.
When Trump first became president in 2017, the federal government collected $34.6 billion in customs duties, fees and fees. That amount more than doubled under Trump to $70.8 billion in 2019, according to data from the Office of Management and Budget.
While that amount seems meaningful, it was relatively small compared to the overall economy. According to the Bureau of Economic Analysis, America’s gross domestic product now stands at $29.3 trillion. Total tariffs collected in the United States would be less than 0.3% of GDP.
Trump wants much more drastic tariffs in the future
The new tariffs that Trump is now imposing are dramatically larger and could have much greater consequences.
If Mexico, Canada and China were to face the additional tariffs Trump has proposed on all goods imported into the United States, that could be roughly equivalent to $266 billion in tax collections, a figure that does not assume any disruption to the trade or retaliation of other countries. to land. The costs of these taxes would likely be borne by American households, importers, and domestic and foreign businesses in the form of higher prices or lower profits.
Former Biden administration officials said they worried that companies could piggyback on Trump’s tariffs — if they are imposed — as a reason to raise prices, just as many companies did after Russia’s 2022 invasion of Ukraine food and energy costs have increased and several major companies have room to raise prices based on their own revenues, investors are calling for.
But what Trump hasn’t really laid out is what could lead him to roll back the tariffs and declare a victory. What he is creating instead with his tariff threats is a sense of uncertainty as companies and countries wait for the details to figure out what this could all mean.
“We know the key economic policy priorities of the incoming Trump administration, but we don’t know how or when they will be addressed,” said Greg Daco, chief US economist at EY-Parthenon.
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AP writer Mark Stevenson contributed to this report from Mexico City.
