Will Trump’s Tariffs Raise Prices? What To Know As Kamala Harris Slams Policy At Debate

Posted by Admin September 11, 2024 Jobs

Topline

Former President Donald Trump doubled down on his plan to raise tariffs on imported goods at Tuesday night’s debate after Vice President Kamala Harris slammed the plan and said it would raise prices—echoing the views of many economists, who believe Trump’s plan would burden everyday consumers even as the ex-president has claimed otherwise.

Former President Donald Trump arrives to speak at a campaign rally at the Mohegan Sun Arena at Casey … [+] Plaza on Aug. 17 in Wilkes-Barre, Pennsylvania.

Key Facts

Trump has proposed raising tariffs—or taxes on imported goods that the businesses importing them pay the U.S. government—if he’s reelected, doubling down on his yearslong focus on tariffs, which he said in a speech Saturday would punish other countries that are “ripping us off and stealing our jobs.”

While he has not yet committed to a single policy, the ex-president has typically proposed raising tariffs by 10%, or by 60% on goods imported from China, up from approximately 1% and 11% now, respectively, according to data from research firm Wolfe Research cited by the Wall Street Journal.

Harris slammed Trump’s plan in a speech on Friday, saying it was “in effect, a national sales tax on everyday products and basic necessities” and declaring it a “Trump tax” on basic goods—causing the ex-president to reinforce his commitment to the tariff policy over the weekend.

Most experts say tariffs raise prices for consumers: The cost of tariffs can be absorbed by some combination of U.S. businesses that import goods, the customers who purchase them and foreign businesses that export them—which might lower their prices to make up for the tariffs—but the right-leaning Tax Foundation found previous tariffs levied during Trump’s first term were paid by U.S. businesses and consumers.

Goldman Sachs economists led by Ronnie Walker projected prices on consumer goods would go up by 0.1% for every percentage increase in the effective tariff rate and raise inflation rates for one year, noting that in addition to the price of imported goods going up, it’s also likely the price of domestic goods would increase, because U.S. manufacturers would “opportunistically” raise their prices to take advantage of having less competition in the marketplace.

Economists also broadly believe Trump’s proposed tariff plan would hurt the U.S. economy, with an analysis by the nonpartisan think tank Peterson Institute for International Economics (PIIE) concluding the proposal would “[inflict] significant collateral damage on the US economy,” citing a range of factors including decreased consumer spending, increasing unemployment rates and worse economic growth.

Moody’s projected Trump’s tariff plan would result in a reduction of 675,000 U.S. jobs and increase the unemployment rate by 0.4%, with Moody’s chief economist Mark Zandi telling CNN, “If Trump increases tariffs as he has proposed, the economy would likely suffer a recession soon thereafter.”

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Big Number

$1,700. That’s how much Trump’s tariff proposals would cost middle-class U.S. households each year, as projected by PIIE. The think tank also estimated for those in the bottom half of U.S. income brackets, Trump’s tariff proposals would reduce households’ after-tax income by approximately 3.5%. The left-leaning Center for American Progress has estimated a higher $2,500 annual cost to middle-class Americans based on 10% tariffs and 60% on Chinese goods, which they project would go up to $3,900 if Trump levies 20% tariffs on most imported goods.

Crucial Quote

“No study of the Trump tariffs has found any evidence that U.S. tariffs result in lower prices for U.S. importers,” economists at PIIE wrote in a May analysis. “On the contrary, study after study has shown that U.S. tariffs levied since 2017 have instead been fully ‘passed through’ to American buyers.”

Chief Critic

“President Trump successfully imposed tariffs on China in his first term AND cut taxes for hardworking Americans here at home—and he will do it again in his second term,” Trump spokesperson Karoline Leavitt told Forbes in a statement when asked about the criticism against Trump’s proposal, claiming the ex-president’s “plan will result in millions of jobs and hundreds of billions of dollars returning home from China to America” and slamming Harris’ policies.

What To Watch For

It’s still unclear what any final tariff proposal Trump enacts would look like. While the ex-president has typically floated 10% tariffs across the board for countries other than China, he suggested Wednesday that could go even higher, saying in a speech there could be tariffs of between “10 and 20 percent.” It remains to be seen if any of those tariff hikes would be coupled with tax cuts that would lessen the impact on American consumers, and Trump has previously floated the idea of replacing income taxes with tariffs. Trump would likely be able to increase tariffs unilaterally without Congress, the Wall Street Journal notes, arguing while the ex-president could encounter some difficulties in imposing a 10% tariff rate across the board, he could take a more piecemeal approach that would alleviate logistical concerns. It’s also unclear how other countries would respond to any Trump tariff increases and if they could retaliate against the U.S. with tariffs of their own, as China did after Trump imposed tariffs against it during his first term. PIIE fellow and former Obama administration staffer Maury Obstfeld told CNN the conflict “could have a destabilizing effect on financial markets,” predicting “China would retaliate massively” and “other trading partners would be unlikely to take it laying down.”

Contra

While Harris is now attacking Trump’s tariff proposal, the Biden administration has largely kept Trump-era tariffs in place, and announced some new tariffs against Chinese imports in May that affect $18 billion worth of goods, blaming “China’s unfair trade practices.” (Trump’s proposed blanket tariffs on China would affect more than $400 billion worth of imports.) The continued Trump-era tariffs on Chinese imports increased the inflation rate by approximately 0.3%, PIIE found in a 2022 analysis. Getting rid of tariffs has been a dicey political issue: The Washington Post noted in 2022 that while some in the Biden administration had encouraged cutting tariffs, including Treasury Secretary Janet Yellen, labor unions have also pressured President Joe Biden not to lift the tariffs, often to boost U.S. competitors. Rust Belt Sens. Bob Casey, D-Penn, and Sherrod Brown, D-Ohio, urged Biden to keep tariffs in place in a 2023 letter, arguing getting rid of them would “undermine American steel and aluminum producers.” “Lowering tariffs would be a benefit to consumers. But there is no political appetite to turn these things back at the moment,” Obstfeld told CNN.

Key Background

Trump has long pushed tariffs as a cornerstone of his trade policy, first hiking tariffs in 2018 that sparked a trade war with China before the two sides reached a trade agreement in December 2019. The ex-president’s move resulted in a sixfold increase in the tariffs on Chinese goods as compared with prior to 2018, PIIE noted, reaching a high of 21% in January 2020, which is still far below Trump’s 2024 proposal. Trump’s initial tariffs—on such goods as washing machines, solar panels, steel and aluminum—applied to other countries besides China as well, but the impact was lower, with PIIE reporting tariffs on other countries increased by 2.2% to 3% on average between 2018 and 2022. Trump and Harris’ argument over Trump’s tariff proposal comes as Harris unveiled her own economic agenda on Friday, which includes efforts to combat grocery store “price gouging,” high housing costs and prescription drug prices. Trump has attacked Harris’ policy proposals and her effort to influence prices, with Leavitt telling Forbes the ex-president is a “businessman” who “certainly doesn’t need economics lessons from the radical San Francisco liberal pushing Communist price controls.”