‘Trump Tariffs’
The cat is out of the bag as President Trump declared a 10 per cent baseline tax on imports from all countries and higher tariff rates on dozens of nations that run trade surpluses with the United States.
In announcing the reciprocal tariffs, Trump was fulfilling a key campaign promise by raising US taxes on foreign goods to narrow the gap with the tariffs the White House says other countries unfairly impose on US products.
The higher rates would hit foreign entities that sell more goods to the United States than they buy. But economists don’t share Trump’s enthusiasm for tariffs since they’re a tax on importers that usually get passed on to consumers. It’s possible, however, that the reciprocal tariffs could bring other countries to the table and get them to lower their own import taxes.
Notably, tariffs are taxes on imports, collected when foreign goods cross the US border by the Customs and Border Protection agency. The money — about USD 80 billion last year — goes to the US Treasury to help pay the federal government’s expenses. Interestingly, the Congress has authority to say how the money will be spent.
Trump — largely supported by Republican lawmakers who control the US Senate and House of Representatives — wants to use increased tariff revenue to finance tax cuts that analysts say would disproportionately benefit the wealthy. Specifically, they want to extend tax cuts passed in Trump’s first term and largely set to expire at the end of 2025. The Tax Foundation, a nonpartisan think tank in Washington, has found that extending Trump’s tax cuts would reduce federal revenue by USD 4.5 trillion from 2025 to 2034.
The move announced by US President will take some time to see how it impacts the economy in the US and other countries that trade with the US.
However, experts have warned that consumers could see overall prices rising within a month or two of tariffs being imposed. For some products, such as produce from Mexico, prices could rise much more quickly after the tariffs take effect.
Some US retailers and other importers may eat part of the cost of the tariff, and overseas exporters may reduce their prices to offset the extra duties. But for many businesses, the tariffs Trump announced-such as 20 per cent on imports from Europe -will be too large to swallow on their own.
Companies may also use the tariffs as an excuse to raise prices. When Trump slapped duties on washing machines in 2018, studies later showed that retailers raised prices on both washers and dryers, even though there were no new duties on dryers.
Raising the tariffs on imports has been an on-going process in the United States procedural code that they follow while dealing with nations that trade with them.
However, this year the move assumes significance as the world economy is under stress and nations that deal with the United States had their eyes fixed on the tariff announcement as they believe that such decision impact their businesses in a huge way.
Interestingly, the US tariffs are generally lower than those charged by other countries. The average US tariff, weighted to reflect goods that are actually traded, is just 2.2per cent for the United States, versus the European Union’s 2.7 per cent, China’s 3per cent and India’s 12per cent, according to the World Trade Organization.
The previous US administrations agreed to the tariffs that President Trump now calls unjust. They were the result of a long negotiation between 1986 to 1994 — the so-called Uruguay Round — that ended in a trade pact signed by 123 countries and has formed the basis of the global trading system for nearly four decades.
However, the new tax regime will reveal an impact once things are actually put in place and the trade cycle starts afresh.
