Despite facing legal peril, Donald Trump has reportedly summoned his top economic advisors to discuss imposing massive new tariffs on imports if elected in 2024. There is no reason to doubt his intentions. Trump actually did some of this, selectively, when he was president. He imposed tariffs on imports of steel and aluminum, claiming it was a national security issue. The additional tariffs indiscriminately hit products from America’s allies and rivals alike. Our allies were shocked. The European Union retaliated with tariffs on U.S. exports. Unsurprisingly, the move by the U.S. was condemned by an international panel at the World Trade Organization (WTO). The Trump tariffs have been rolled back by the current administration, with some ceilings on imports left in place. Trade peace was restored, at least for now.
Trump also imposed 25% tariffs on a broad range of products from China. China retaliated in kind with tariffs of its own. This set of tariffs remains largely in place. Both the U.S. action and the Chinese response were condemned at the WTO. By imposing the tariffs on goods from China, the idea was to get China to buy more U.S. goods and change trade policies that displeased the U.S. There is no evidence that China did either.
There was a time when nations competed in imposing high tariffs on each other’s goods. It did not end well. That was almost a century ago, so the memory of those terrible policy mistakes is not exactly fresh.
In 1930, Congress, which under the Constitution has the power over U.S. commerce, decided to jack up the tariff levels to around an average of 40%. The U.S. was not alone in this foolish endeavor. Other major trading countries raised their tariff walls as well. The tariff-raising competition deepened and lengthened the Great Depression, with unemployment hitting 25% in the U.S. This economic warfare helped bring on the Second World War, as Germany turned to fascism and aggression in a bid to return to economic growth.
It has taken much of the last century to return to lower tariffs. The average U.S. tariff is now under 3% and U.S. unemployment is down to 3.5%. But it would be all too easy to reverse that progress.
America needs allies. Recently, the prime ministers of Japan and South Korea were hosted at Camp David by President Joe Biden. They are necessary to U.S. defense in the Pacific. Across the Atlantic, the U.S. is working with the EU, the U.K., and other allies to push back against Russian aggression in Ukraine. Slapping universal tariffs on all foreign goods based on the notion that all other countries are somehow competing unfairly would strain America’s alliances to their breaking point. Other governments have domestic politics too. They would be forced to retaliate.