With Democrats asleep at the wheel, running an anti-personality contest for president last year, Donald Trump squeaked out a narrow presidential win, making hay on three core issues: 1. controlling inflation, 2. knocking down grocery prices (some overlap with 1) and 3. anti-immigration.
Logic was in short supply in the Trump/Harris campaigns, but would you not think that the winner would concentrate on those three core issues once in office?
Yet, President Trump is fixated on tariffs as an ultimate solution to many problems. Did he and we not learn from his tariff war in his first term that they are often counter-productive on prices and inflation?
No question that the president is using the threat of tariffs for bargaining leverage. That strategy surfaced in his first two days in office with 25% tariff threats on our neighbors to the north and south. Both countries threw in some token concessions on immigration, and he backed off for a month.
It is almost unanimous among economists that tariffs are not paid by foreign producers, that they serve as a new tax on American consumers.
Get that? The tariffs invariably raise prices on products, such as huge supplies of fruits and vegetables from Mexico. How does that square with Trump’s promise on the campaign trail to lower grocery prices? His campaign rhetoric was mostly an empty promise, because he knows that presidents don’t have much leverage on grocery prices. The market sets the prices.
Point in case: egg prices have escalated to as much as 70 cents apiece because millions of chickens have been “culled” (killed and buried) at American poultry farms to prevent the spread of bird flu.
There is not much Trump can do about it in the near term. He could, however, accelerate development of a vaccine should it jump to humans. It has already jumped to wild animals, cows and a small number of humans.
He can also make sure that federal agencies are fully engaged in containing further spread in domestic poultry. He can make sure that Elon Musk’s slashing of federal employees doesn’t affect those who deal with Avian Flu. He and Musk delight in firing people.
Back to tariffs. There will be economic damage on both sides of the borders. Beyond being a tax on consumers, they punish American exporting companies and our economy because China, Mexico and Canada are installing retaliatory tariffs on U.S. products.
For example, Canada exporters will sell less lumber when tariffs drive up its prices to American customers, but American importers will also sales volume. It’s a lose-lose, except for lumber producers here who will raise prices behind the tariff wall.
Wisconsin is a major soybean grower.
The saga of what happened to American soybeans in Trump’s first administration should educate us all. China slapped a retaliatory tariff on American soybeans and $27 billion in sales were lost to American farmers in 2018 and 2019.
The Trump Administration rushed some $2 billion in subsidies to the distressed farmers to cover some of their losses. But China had already started sourcing from South America. Those new relationships have not gone away and soybean exports have not fully recovered, even though the tariffs were lifted in 2020. There was permanent damage.
The soybean trade war hurt Wisconsin because it is a large supplier of soybean exports.
Another hurt to the Wisconsin economy back then was the higher prices that tariffs caused on steel imports. Wisconsin is the home of many steel users, such as the manufacturers of lawn tractors, snowblowers, outboard marine engines and automobile parts. U.S. steel producers were able to raise their prices to those manufacturers because the competition from Chinese steel producers was lessened.
There are cases where targeted, surgical tariffs are the right response, such as when countries are dumping products laden with government subsidies, when products are produced in companies that violate labor and environmental standards and when an emerging essential U.S. industry is under attack.
Export restrictions on products like chips used for military weapons by an enemy country also makes sense.
On the way to the Super Bowl, Trump floated still more tariffs. Here we go again with a 25% tariff on steel and aluminum. The supply chains around the U.S. steel and aluminum products will be impacted by lower volumes.
If the goal of President Trump is to lower inflation, especially in the grocery stores, you would think he would strive to lower tariffs around the world. That would mean trade peace, not the trade wars that he is starting.
It was a cliché when Ronald Reagan was president that once he had an idea in his head, it was hard to get it out. That seems to be the same case with Donald Trump on tariffs.
Like Reagan, Trump is fixated on the idea that tariffs are a powerful weapon to even the score with concessions from other countries. It looks like he will push broadly for tariffs even though that strategy runs counter to his campaign promises to lower the inflation rate and grocery prices.
They are already creeping up in anticipation of the impact of his trade war. So much for his campaign promises on lowering the inflation rate and reducing consumer prices.
