RSS SubscribeHow Much Leverage Does the U.S. Have in New Trade Wars?
By Felix Richter – Statista
Historically, tariffs have primarily served two purposes, which were to raise revenue for the government and to protect domestic industries from foreign competition. President Trump has a decidedly different view of tariffs, as he considers them a bargaining chip in political disputes. In the early days of his second administration, this has become clearer than ever, as Trump is once again using tariffs to wield economic power in pursuit of his political goals.
When he announced the implementation of a 25-percent tariff on all imports from Canada and Mexico and a 10-percent additional tariff on China on February 1, it wasn’t to raise government revenue or protect U.S. industries, but to stop what he describes as “the flood of illegal aliens and drugs” from pouring into the United States. During his campaign, Trump has repeatedly blamed Mexico, Canada and China for their respective roles in the illicit fentanyl trade and the latest tariffs are his way of forcing them into action.
So exactly how much leverage does the U.S. have potential trade wars with Canada, Mexico and China?
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#25-percenttariff #fentanyl
During his first term, Trump pursued an aggressive trade policy, imposing 10-20% tariffs on approximately $350 billion worth of Chinese imports, along with similar tariffs on steel and aluminum. But instead of shrinking, the trade deficit increased by nearly 40% from $480 billion in 2016 to $680 billion in 2020.
What is often overlooked is that the real reason the trade deficit widened under Trump was not tariffs but tax cuts. While Trump was raising import duties, he was also aggressively slashing taxes. The 2017 Tax Cuts and Jobs Act had two major effects: incentivizing investment by lowering the corporate tax rate and increasing the budget deficit, thereby reducing the national savings rate. Consequently, even before the COVID-19 pandemic caused the deficit to surge, it had already jumped from $584 billion in 2016 to $984 billion in 2019.
The key economic lesson Trump should have taken from his first term is that trade deficits aren’t determined by tariffs but by a country’s spending relative to its production.
https://www.project-syndicate.org/commentary/trump-economic-policies-will-increase-us-trade-and-budget-deficits-by-desmond-lachman-2025-02