Donald Trump arrived in Washington eight years ago promising to rewrite America’s trade relations, reduce a huge goods trade deficit and rebuild the country’s industrial base with new tariffs.
The president-elect is about to launch an even more aggressive effort in his second term, vowing to impose a 10% tariff on all U.S. imports and a 60% tariff on products from China.
Although it is not yet clear how this strategy will play out, data from its first attempt to alter the trade landscape shows that it succeeded in diverting American imports from China to other countries, especially Mexico and Vietnam.
However, the US trade deficit continued to grow, topping $1 trillion over the past four years, and manufacturing employment has stagnated amid an overall jobs boom since the COVID-19 pandemic.
Read: Tariff war may further weaken global GDP forecast for 2025: WB
Descent of steel
Steel producers in the United States benefited the most from Trump’s tariffs, getting an overall tariff of 25%, while aluminum producers had a tariff of 10%.
These measures were eased somewhat after the first Trump administration negotiated quota agreements with Mexico and Canada, and the Biden administration continued similar agreements with the European Union, the United Kingdom, and Japan.
Meanwhile, China’s dominance in these sectors globally has kept prices low, contributing to lower capacity utilization rates.
Some plants that were initially revived by tariffs, including one by US Steel in Granite City, Illinois, visited by Trump in 2018 to announce the industry’s resurgence, have closed smelters. An aluminum smelter in Missouri, revived by tariffs, also closed last year under Magnitude 7 Metals.
The biggest trade impact of Trump’s first term was breaking decades of political consensus that favored lower and lower trade barriers, allowing China to become the world’s largest producer of goods. In fact, when Trump left office in 2021, the issue was taken up and amplified by President Joe Biden.
“Waking up the world to the economic threat from China was one of the major achievements of Trump’s first-term trade agenda, as was the renegotiation of some of our key trade relationships,” including updating the Americas free trade agreement. North, said Kelly Ann Shaw, a trade adviser during Trump’s first term.
Read: Trump’s tariffs would force Canadian companies to raise prices
“We are now having a healthy debate in the United States about which industries we want to preserve, which supply chains are critical and where we should focus our trade relationships,” added Shaw, a trade lawyer at the firm Hogan Lovells in Washington.
Trump’s 25% tariffs on $370 billion of Chinese imports helped reduce the U.S. trade deficit with China, from $418 billion in 2018 to $279 billion in 2023. But as companies shifted production to Elsewhere, new beneficiaries emerged: Mexico and Vietnam. The growth of its trade surpluses with the United States far outpaced the decline in China’s.
Retaliation and cost
This change came at considerable cost. China responded with retaliatory 25% tariffs on U.S. soybean exports and for years largely shifted aircraft purchases from Boeing to rival Airbus.
American whiskey distillers were hit by EU retaliation over steel tariffs, but exports rebounded when those tariffs were removed, said Chris Swonger, CEO of the Distilled Spirits Council of the United States.
In the 2020 “Phase 1” trade deal, which ended the US-China trade war, Beijing pledged to increase its purchases of US goods and services by $200 billion over two years, but failed to deliver. due to the COVID-19 pandemic.
Promised increases in China’s purchases of U.S. soybeans went to Brazil and Argentina. Scott Gerlt, chief economist for the American Soybean Association, said that change is permanent.
“We never recovered the volume of soybean exports to China since that trade war,” Gerlt said. “A lot of land was put into production in Brazil. “Brazil surpassed us in exports to China.”
This shift could help China withstand a new trade war, but soybeans remain the United States’ top export to China.
Commercial aircraft, once in first place, have been slow to recover, while shipments of motor vehicles to China have also declined as China’s electric vehicle industry has grown. Instead, crude oil went from zero a decade ago to $13 billion in 2023.
The United States remains heavily reliant on China for technology imports, including smartphones, laptops and video game consoles. Many of these products were spared tariffs from Trump’s first term, but tariffs of 60% or more would significantly increase costs.
China’s vast scale and efficiency in sectors such as electronics and toys cannot be easily replicated elsewhere, creating difficult decisions for companies in the face of high tariffs, said Mary Lovely, a trade economist and senior fellow at the Peterson Institute for Economics. International.
“These are huge companies. How do you recreate that in another country that is a tenth the size of China? “You can’t,” Lovely added.
Trump’s first-term tariffs did not cause an increase in consumer price inflation, but they were limited in scope and caused only one-time price increases, said Doug Irwin, an economics professor at Dartmouth College and a trade specialist.
“Tariffs are just a tax, and therefore they lead to a one-time increase in the price level of those goods,” Irwin said. “They are not this continuous increase in the general price level, which is inflation.”
The impact on prices of future tariffs also depends on factors such as US fiscal and monetary policy, which can raise the value of the dollar, trade retaliation that could reduce the prices of other domestic goods, and whether importers or exporting companies absorb part of the costs of tariffs.
Tariff revenue
Trump has also promised to reduce the United States’ debt with tariff revenues. On Tuesday he promised to create an “External Revenue Service” to collect tariffs, duties and revenue from all foreign sources. Collections from its punitive tariffs since 2018 suggest a vast increase would be needed to make a dent in US deficits, which are now approaching $2 trillion a year ahead of an expected extension of tax cuts, estimated at more than $4 trillion. of dollars in new debt over a decade.
Total collections from tariffs on steel, aluminum, solar panels and goods from China have totaled $257 billion over seven years, a paltry figure compared to cumulative deficits of $12.57 trillion over that time.
The conservative Tax Foundation estimates that Trump’s 10% universal tariff would raise about $1.7 trillion over 10 years, including the negative impact on economic growth.
With information from Reuters
Follow us on Google News to always stay informed
