Is there a vision behind tariff chaos? Trump says it鈥檚 about jobs and fair trade.
As President Donald Trump prepares to announce major new import tariffs Wednesday, chaotic preparations and stock market unease have raised a basic question: Does he have any grand strategy behind a step that appears certain to hurt American consumers?
He has asserted that he does have a viable and coherent economic plan 鈥� one that emphasizes reviving homegrown manufacturing, resetting imbalances in global trade, and shrinking the size of government to help address swelling public debt.
Using economic pressure to force the world鈥檚 manufacturers to set up shop in the United States, President Trump hopes to slash the roughly $1.2 trillion annual trade deficit, boost national self-sufficiency, raise federal revenues, and unleash a jobs boom. On Wednesday, which he calls 鈥淟iberation Day,鈥� he鈥檚 due to announce his reciprocal tariffs 鈥� taxing imported goods at levels that, the administration says, are equivalent to trade barriers that other nations impose on the U.S.
Why We Wrote This
President Donald Trump hopes to use reciprocal tariffs to boost national self-sufficiency while unleashing a jobs boom. What鈥檚 less clear is whether they can work.
He says the strategy not only can work, but already is working.
鈥溾�媁e鈥檙e going to have growth in the auto industry like nobody has ever seen. Plants are opening up all over the place. Deals are being made,鈥� the president told a joint session of Congress last month. 鈥淭hat鈥檚 a combination of the election win and tariffs.鈥�
But if he has conveyed a vision, Mr. Trump has also sent mixed signals. What鈥檚 still a mystery is whether he will use tariffs as a tool to extract concessions and investments or as a long-term solution in itself. Even less clear is whether they can work.
鈥淢ost economists would say this doesn鈥檛 make sense in terms of promoting economic growth,鈥� says Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics. 鈥淚t will dampen economic growth even as it feeds inflation.鈥�
The president has acknowledged that his strategy may bring some near-term challenges, such as a possible recession. At the same time, it鈥檚 possible that by shaking up long-standing patterns of global trade, Mr. Trump will prompt a jump in factory investment within the U.S. by multinational firms 鈥� and perhaps push other nations to reduce their trade surpluses (in which exports exceed imports).
To many economists, a trade surplus or deficit isn鈥檛 inherently good or bad. But some acknowledge that America鈥檚 long-standing trade deficit with the rest of the world reflects unhealthy imbalances in a range of major economies.
In pursuing his strategy, President Trump faces at least two challenges. One is timing. The other is automation.
The timing problem
Consider timing first. Under his plan, the bad stuff happens up front. Effectively a tax on much economic activity, tariffs typically mean slower growth, higher prices, and higher inflation. Companies may try to absorb the higher costs of their imports. But some of those costs are bound to get passed on to consumers.
Take autos. The he will impose 25% tariffs on imported cars starting Thursday and on auto parts no later than May 3. (Parts that qualify for preferential treatment under the United States-Mexico-Canada Agreement would be exempt for the moment.) The auto industries of the three nations are so intertwined, with some parts crossing borders multiple times, that untangling them will take time.
鈥淚t鈥檚 going to be a huge hit and a huge mess,鈥� says , director of labor studies at Cornell University鈥檚 School of Industrial and Labor Relations. Analysts at Wedbush Securities the cost of a typical new car will rise by $5,000 to $10,000 almost immediately. President Trump鈥檚 tariffs will mean higher prices for many other goods, too, including imported food and anything using aluminum or steel.
If the 2024 election is any guide, voters hate higher prices. Such discontent may well rear its head in midterm elections next year. Republicans, who hold only a slight majority in both houses of Congress, are vulnerable.
The payoff from tariffs will be less immediate. Tariff revenues should swell federal coffers, and Mr. Trump has floated the idea of issuing a rebate to consumers. But he鈥檚 also talked about using the money to bail out losers in the new tariff regime, such as farmers, reducing the federal deficit, and paying for his proposed tax cuts or replacing the income tax. Economists say tariff revenues won鈥檛 come anywhere near to accomplishing even some of those goals.
The new manufacturing jobs, meanwhile, will happen long after President Trump鈥檚 term ends. To locate a factory in the U.S., companies have to find a site, negotiate with state and local governments to buy it, get their construction approvals, and build the factory, all before manufacturing jobs appear. It鈥檚 a process that takes years.
Uncertainty on employment
Those jobs are the president鈥檚 second hurdle. Will increasingly automated factories generate a boom of new manufacturing jobs? Presumably, there will be more robot technicians. But experts are divided on whether there will be a big surge in jobs for less educated, less skilled workers, to whom Mr. Trump has promised help.
鈥淭he key is that you create a pipeline, a pathway for low skill to high skill,鈥� says Olaf Groth, a business and public policy professor at the University of California, Berkeley Haas School of Business and CEO of Cambrian Futures, an analysis and futurist firm for artificial intelligence and emerging tech. 鈥淚f we get that pathway right, then yes, we could be looking at less income inequality. But without that pathway, we鈥檙e looking at more income inequality.鈥�
Signals of sentiment suggest that Americans are skeptical. A Harvard CAPS/Harris poll released Monday found that the president鈥檚 job performance from 52% in February to 49% in March. Investors are grumpier, too. The stock market this week closed out its worst first quarter in three years. Ditto for consumers. The University of Michigan鈥檚 sentiment index for March found that consumer expectations for the economy since the election and that unemployment expectations were at their highest since 2009.
Hints of a slowdown are also creeping into the numbers. Consumer spending 鈥� a big prop to the U.S. economy 鈥� fell in January for the first time in 20 months before rebounding a bit the following month. Inflation remains the Federal Reserve鈥檚 2% target. Economists are revising downward their estimates of economic growth for the first quarter.
Leverage for Trump
The president retains some advantages. Some big names have already committed to big investments in U.S. factories, including Apple, Japan-based SoftBank, Taiwan Semiconductor Manufacturing Co., Johnson & Johnson, and the United Arab Emirates. Job growth 鈥� another big prop to the economy 鈥� continues, although at a decelerating rate. The tax cuts Mr. Trump is proposing could go some way toward cooling consumer anger over rising prices. Those price hikes should be a one-time event, although it may not feel that way if companies try to ease the sticker shock by delaying price increases.
In a strange way, the nation鈥檚 huge trade deficit also gives Mr. Trump negotiating leverage. Other countries need the U.S. more than the U.S. needs them. And America鈥檚 large domestic market insulates it better from a downturn in exports than its more export-dependent trading partners: Mexico, Canada, China, Japan, and the European Union.
Should the president use that leverage to negotiate down tariffs all around, it could boost growth in the U.S. and world economy. If he keeps tariffs in place to fund his tax cuts or to try to protect U.S. industry, growth is likely to slow around the globe, including in the U.S.
The ambiguity emanating from the White House makes it hard to know who鈥檒l be leading America鈥檚 trade policies: Trump the negotiator or Trump the protectionist.
