Trump Plans 10% Tariff Hike on All Imports Hinting at ‘Trade War Season 2
Former U.S. President Donald Trump who is challenging next year’s presidential election plans to increase tariffs by 10% on all imported goods including those from allied countries if he is re-elected. This has raised concerns that if realized it will spread protectionism including retaliatory tariffs from other countries potentially leading to a global trade war.
According to The New York Times (NYT) on the 26th (local time) Robert Lighthizer, the former U.S. Trade Representative (USTR) who led the trade policy of the Trump administration revealed in an interview with the media that he plans to raise tariffs on all imported goods by 10 percentage points compared to the current rate.
The current plan is to increase the tax rate from 5% to 15% if the tariff imposed on imported goods is 5%. Previously former President Trump announced in August that he would introduce a universal tariff of 10% on imported goods but it was not clear whether the total tax rate was 10% or whether the increased rate was 10%. When the NYT sent interview questions to the Trump camp former Representative Lighthizer confirmed the plan to increase tariffs by an additional 10%. However, it is not yet confirmed whether Trump will impose such a universal tariff on the 20 countries including South Korea that have signed a Free Trade Agreement (FTA) with the U.S.
Former Representative Lighthizer stated, “Considering the size of the U.S. trade deficit and its impact on the U.S. economy, the president will have clear authority to unilaterally impose tariffs under two laws ‘the International Emergency Economic Powers Act (IEEPA)’ and ‘Section 338 of the Tariff Act’. He is expected to take on a key role if a second Trump administration becomes a reality.
The Wall Street Journal (WSJ) also highlighted Trump’s trade policy in which he hinted at imposing tariffs on an ‘eye for an eye, tooth for a tooth’ basis. According to the paper Trump wants to sever normal trade relations with China through legal measures that automatically raise tariffs on all imported goods ranging from toys to aircraft and industrial raw materials. The paper predicted that he would impose tariffs on software and digital services in the European Union (EU) and scrap the India-Pacific Economic Framework (IPEF) which is aimed at strengthening economic cooperation with Asian allies.
This is likely to trigger a major retaliatory response from other countries potentially sparking a trade dispute. There are warnings within the U.S. that relations with China and allies could deteriorate. If tariffs are raised and the price of imported goods increases, there is a high probability that inflation which has recently been subdued will rebound.
Daniel M. Price who served as an international economic advisor during the George W. Bush administration predicted that Trump’s plan for a universal tariff is “capricious and irrational,” and that it “passes on the costs (of the tariff increase) to U.S. consumers and producers and risks alienating allies.” He warned, “Major trading partners like Japan and South Korea restrained from retaliation when Trump abused tariffs on allies citing fabricated national security in the past believing he would soon come to his senses but this time they won’t be deluded.”
It is also projected to hurt the U.S. economy. The U.S. Tax Foundation estimated that if a 10% universal tariff is introduced the tax burden on U.S. consumers and businesses will increase by $300 billion. It predicted that the U.S. economic growth rate would drop by 0.5%, and more than 500,000 jobs would disappear. The conservative group American Action Forum predicted that the universal tariff would slow down economic growth by 0.3%.
Some speculate that if former President Trump succeeds in regaining power, the actual implementation of trade policy will be more of a retreat than promised. Inu Manak, a senior researcher in trade policy at the Council on Foreign Relations, predicted “Even if Trump is re-elected, he will not fully implement his trade policy as he has publicly stated. The 10% universal tariff is likely to cause inflation and is unlikely to be fully imposed and Lighthizer will mediate this.”
By. Hae Young Kwon