With Trump in Charge, Are Import Tariffs Coming Soon?

As we all know this past year Donald Trump embarked on a historic campaign that defied all odds and ended with him assuming the title of President-Elect of the United States. Along the trail, when he wasn’t talking about other top issues such as immigration, Trump was railing against foreign countries that take advantage of us through trade and companies that leave the U.S. to take advantage of lower labor costs. His hit list included companies like Carrier (which he later cut a deal with), Apple, and Nabisco that make products outside of the U.S., while also discussing trade deals such as NAFTA and the Trans-Pacific Partnership (TPP) that he says do not work in America’s favor.

Now with his inauguration less than a month away, Business Insider reports that the Trump transition team is considering instating a 5% tariff on all imported goods, which the new President would enact via executive order in the early days of his administration. To be fair this announcement could just be a negotiating tactic, which the President-Elect has said in the past he plans to use. In fact, at this point, the potential tariff is said to have been “floated” — meaning no official decision has been made just yet. It’s also unclear if this would mean a flat 5% across the board (for now) or whether it would tack on an additional 5% for tariffs already in place, including the 2.5% on Chinese goods.

If the 5% tariff does indeed become reality, it may only be the beginning. As Business Insider notes, Trump has previously called for a 45% tariff against China, who he accused of unfairly manipulating their currency. Other likely targets for even higher tariffs include Mexico and Japan.

On the one hand tariffs might seem like an effective way to keep jobs in America. After all, in addition to Carrier deal Trump and his VP — soon-to-be-former Indiana Governor Mike Pence — worked out to prevent the company moving abroad, Apple has reportedly looked into the possibility of moving their manufacturing operations from China to the United States. But who will really end up paying the extra fees?

The first likely effect of such import tariffs would be higher prices for consumers across the board. Not only will items and parts landed from other countries become more expensive but those businesses that choose to move to or stay in the U.S. may be forced to hike prices as well due to higher labor costs. At the same time there is no guarantee that wages will rise enough to offset the price increase. It is true that Trump also plans to lower the corporate tax rate to 15%, which may help to pad the bottom line for many companies but that doesn’t necessarily mean those savings will be passed onto customers.

Another major concern critics have about Trump’s plan is that the jobs he may be saving by encouraging companies to stay home are ones that will inevitably be replaced as technology improves. Many of the positions in question are in manufacturing, which is an area most susceptible to greater automation, which is more efficient and cost effective than human labor. Meanwhile economists warn that the global economy — not just the U.S. — could eventually be sent into recession as a result of this potential trade war.

The idea of a “trade war” might sound dramatic, but in fact Trump has actually acknowledged that as a possible result of his proposed policies. In recent rallies the President-Elect has been quoted as saying, “We have to look at it almost as a war. Who the hell cares if there’s a trade war?” Only time will tell if that sentiment is sincere or just bluster but, either way, we could see some major changes coming to our economy in the coming years.

Author

Jonathan Dyer

I'm a small town guy living in Los Angeles looking to make solid financial decisions. I write for a number of finance websites, including HuffingtonPost and Business2Community. I founded DyerNews.com in 2015 to focus on personal finance and the emerging FinTech markets.

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