Trump pushes forward on tariffs

 

President-elect Donald Trump refuted a report that he planned to pare back his tariff agenda to more narrowly target certain imports deemed critical to defense, energy production, and medical supplies, but keep them applicable to every country.

 

Trump said the report from the Washington Post on Jan. 6 “incorrectly states that my tariff policy will be pared back. That is wrong.”

 

This strong statement implies he remains committed to his campaign pledge to institute universal tariffs of 10% to 20% on all imports from all countries, with tariffs as high as 60% to 100% on Chinese goods.

 

The report relied on unnamed Trump aides, and suggested that Trump may start with tariffs on steel, iron, aluminum, copper, batteries, rare earth minerals, and even solar panels syringes, needles, vials, and pharmaceutical materials. Part of the rationale behind that approach may be to wait for the economy and markets to digest the impact of initial tariffs that Trump can impose unilaterally through executive action. Trump benefitted in the 2024 campaign from the political damage wrought on the Biden administration by inflation, and values a strong stock market. Trump benefitted in the 2024 campaign from the political damage wrought on the Biden administration by inflation, and values a strong stock market, which tariffs might weaken. These factors might temper his enthusiasm for full enactment of what he’s proposed, though so far, he appears to be moving forward full-steam ahead.

 

Tariffs could have significant consequences for inflation and the economy. The Congressional Budget Office, a nonpartisan, official expert source for budgetary and economic matters for Congress, recently published a preliminary analysis of the least aggressive version of Trump’s public proposals on tariffs, a 10% across-the-board tariffs and 60% tariffs on Chinese goods.

 

The CBO estimates those would increase the personal consumption expenditure index, a measure of inflation, by approximately 40% from its most-recent (Nov. 2024) level of 2.4%, while slowing U.S. GDP growth by 0.6%, which could reduce CBO’s 2025 growth projection from 1.9% to 1.3%.). The CBO cautions that its economic impact estimates “are very uncertain” because “the United States has implemented no increases in tariffs of this size in more than 50 years, so there is little relevant empirical evidence on their effects,” but noted that “the direction of the estimated effects is consistent with previous experience.”

 

The estimate also does not factor in the larger 20% across-the-board tariff Trump floated during the 2024 campaign, nor more recent threats of 25% tariffs on Mexican and Canadian imports, the U.S.’s largest and third-largest suppliers of goods, respectively, and the two largest export markets in 2023, according to the Commerce Department. If enacted, those tariffs could have a significant inflationary impact, as well as put an additional brake on economic growth, both due to increased cost of goods for U.S. businesses and consumers, and because Canada and Mexico, the current two largest markets for U.S. exporters have threatened retaliatory tariffs on U.S. products. 

 

Despite the stark economic impact warning around tariffs, one estimate from the official budgetary scorekeeper might further fuel Trump’s enthusiasm for them: the CBO projects that the 10% across-the-board and 60% China tariffs would raise approximately $2.7 trillion over 10 years.

 

On Jan. 5 Trump reaffirmed his linkage of tariffs to tax policy in a separate social media post, saying in all-caps that his tax agenda, “WILL ALL BE MADE UP WITH TARIFFS, AND MUCH MORE, FROM COUNTRIES THAT HAVE TAKEN ADVANTAGE OF THE U.S. FOR YEARS.”

 

Congressional Republicans have indicated they will leave tariff matters to the executive branch, so executive action around tariffs would not offset revenue lost from tax cuts in CBO’s official revenue scores. However, Republicans could argue that an additional $2.7 trillion (or a revised CBO estimate after tariffs are or are not announced) on a parallel track could effectively be used to offset lower taxes.

 
 

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