Donald Trump has said he'd impose a 60 per cent tax on goods coming from China if he were to win a second term as President. Photo / Charly Triballeau, Pool Photo via AP, File
Donald Trump has said he'd impose a 60 per cent tax on goods coming from China if he were to win a second term as President. Photo / Charly Triballeau, Pool Photo via AP, File
Donald Trump’s economic policies will disproportionately hit America’s poorest households, which will pay the biggest chunk of a $500 billion-a-year (NZ$818b) burden should the Republican nominee win and introduce tariffs on all US imports, according to Peterson Institute economists.
Trump plans to impose a 10 per cent levy on allUS imports and a 60 per cent tax on goods coming from China. The tariffs will fund his plans to extend a series of tax cuts, which he introduced while president in 2017, beyond 2025.
The Washington-based think-tank’s research, published on Monday, said both policies were “sharply regressive tax policy changes, shifting tax burdens away from the well-off and towards lower-income members of society”.
The paper, by Kim Clausing and Mary Lovely, puts the cost of existing levies plus Trump’s tariff plans for his second term at 1.8 per cent of GDP. It warns that this estimate does not consider further damage from America’s trading partners retaliating and other side effects such as lost competitiveness.
“This calculation implies that the costs from Trump’s proposed new tariffs will be nearly five times those caused by the Trump tariff shocks through late 2019, generating additional costs to consumers from this channel alone of about $500b per year,” the paper said.
The average hit to a middle-income household would be $1,700 a year. The poorest 50 per cent of households, who tend to spend a bigger proportion of their earnings, will see their disposable income dented by an average of 3.5 per cent.
Trade tariffs — particularly against Beijing — were one of the economic hallmarks of Trump’s first term in office. They have not been reversed by President Joe Biden, Trump’s rival again in 2024.
Biden last week unveiled additional tariffs on Chinese green-tech exports, including a 100 per cent levy on Chinese electric vehicles. The administration claims Beijing’s manufacturing subsidies risk triggering a global supply glut that will force US companies out of business.
Lovely told the Financial Times that Biden’s actions would not have as negative an impact on poorer Americans as they cover a far smaller share of imports. “We are not talking about a big burden here, at least not yet,” she said, adding that Biden had also “explicitly stated that he does not support broad use of tariffs”.
However, Lovely warned that the drive towards the levies by both presidential candidates was a concern, saying they were “an easy tool to overuse”.
A Peterson Institute economist says trade policies should be crafted to meet an objective, such as a strong US domestic auto sector. Photo / Gerenme, Getty Images
“Policies should be crafted to meet an objective, such as a robust US domestic auto sector, at the minimum cost to US taxpayers,” she said. “Almost always achieving that goal means minimising the extent to which the policy disrupts international trade.”
Biden’s actions and Trump’s plans could play well with voters.
Although the levies will raise US prices, the latest edition of the monthly FT-Michigan Ross poll found that a significant minority think tariffs are necessary to protect US jobs. A majority were in favour when it comes to steeper tariffs on China.
Economists, meanwhile, have grown increasingly concerned by the cost of Trump’s plans to extend elements of his Tax and Jobs Act, which was introduced in 2017 and is set to expire in 2025.
The Congressional Budget Office, the independent fiscal watchdog, said the cost of extending all of the provisions would come in at almost $5 trillion over the next 10 years, once the rise in interest payments was taken into account.
Arthur Laffer, viewed as one of Trump’s economic advisers, said in an interview with the FT that the 2017 cuts had paid for themselves through stronger growth and higher tax revenues. That claim is at odds with the CBO’s findings.
While Trump’s team has argued that this second round of tariffs could plug any fiscal gap left in extending the tax cuts, the Peterson Institute paper claims revenues from the levies would, at best, amount to $2.75t.
“Even ignoring growth effects, the consequences of increasing trade elasticities over time, the likely need to subsidise those hurt by retaliation, and the costs of rent seeking, tariff revenues would fall far short of the revenue needed to pay for a full extension of expiring [TJCA] provisions,” the paper said.
