The universal tariff went into effect Saturday at 12:01 a.m. ET after President Donald Trump signed an executive order earlier in the week requiring a baseline tax for all imports. The announcement sparked an outcry from America’s trading partners — allies and foes alike — along with American businesses, investors and consumers.
Economists fear the tariffs — the highest America has imposed in a century — will plunge the United States and the world into a recession. Markets have tumbled, and China’s tariff retaliation Friday launched a full-blown trade war.
And Trump isn’t done.
On Wednesday, America will impose significantly higher “reciprocal” tariffs on a number of countries that have the highest trade imbalances with the United States. Trump has also put in place tariffs on autos, steel and aluminum. He placed 25% tariffs on certain goods from Canada and Mexico. Tariffs on auto parts are set to go into effect no later than May. And Trump has also threatened tariffs on lumber, pharmaceuticals, copper and microchips, among other products.
What Trump wants from tariffs
Trump has treated tariffs as a kind of panacea: an economic magic wand he can wave to restore America’s manufacturing prowess, bring foreign nations to heel on key disputes, restore the balance of trade and bring in gobs of money that can help pay off the US deficit and reduce Americans’ tax burdens.
Economists largely agree that tariffs can help fulfill many if not all of those promises: When used effectively, tariffs can help boost production at home by making foreign goods more expensive. Revenue raised by tariffs could help offset some of its deficits.
And many Americans who voted for Trump are hopeful for a change. Despite an economy that has fully recovered from the pandemic — on paper, at least — many people feel left out. Free-trade agreements have in some instances accelerated factory shutdowns, leading to ghost towns and the deterioration of many blue-collar jobs.
But Trump’s tariffs seek to remake the global economy in one fell swoop. They aim to bring back a long-gone era of booming factories that companies are hesitant to restore, even if it means paying a higher tax to import goods. Trump promises a return to the golden age of factory work.
Trump’s tariffs, if he doesn’t negotiate them lower, could inflict more harm to the US economy than the countries he is targeting – and in the process sink the economy into a painful recession.
There’s another potential problem with Trump’s plan: Tariffs can’t achieve all of his goals at the same time. Trump’s aims are often contradictory.
For example, if tariffs are a pressure campaign, they have to go away once the countries acquiesce — which means there will be no tariffs to restore the trade balance. If tariffs are designed to promote America’s manufacturing sector, they can’t also raise revenue to offset deficits. If Americans switch to made-in-the-USA goods, then who pays the tariff on foreign products?
