What’s in Trump’s economic plan? Tariffs, tax cuts, energy…

Ahead of the November election, economists warn that his policies could drive up consumer prices and disrupt global trade – with unclear benefits for U.S. manufacturing.

The aim of the tariffs is to raise billions of dollars in revenue and target countries like China that have “ripped us off,” while simultaneously pushing companies to bring production back to U.S. shores.

“Other countries will finally pay us back after 75 years for everything we have done for the world,” Trump said in his September debate with Democratic candidate Kamala Harris.

He said at a rally in Michigan last week: “Tariffs are the best word for me.”

The former president has promised a flat 10 to 20 percent tariff on imports and a 60 percent rate on Chinese goods – and recently threatened a 200 percent levy on cars made in Mexico.

It is U.S. companies — and not foreign governments, as Trump often claims — that pay import taxes on purchases abroad when tariffs are imposed on such goods, and they can pass on the higher costs, which could increase inflation.

In addition to his tariff plans, Trump wants to extend expiring tax cuts and further reduce corporate taxes.

But the proposed tariffs could counteract the benefits of his tax policies “while failing to offset lost tax revenues,” the Tax Foundation think tank said.

– Higher costs –

U.S. inflation could rise 1.3 percentage points above baseline next year if Trump imposes a universal 10 percent tariff and other governments take countermeasures, the Peterson Institute for International Economics (PIIE) said.

Sharp price increases for Chinese goods would also fuel inflation, the institute added.

Others, like Bernard Yaros of Oxford Economics, estimate that a Trump presidency could raise inflation by 0.6 percentage points at its peak.

Companies previously bore the brunt as imported components became more expensive, said Kyle Handley, a professor at UC San Diego.

But he noted: “If they introduce a flat rate of 10 to 20 percent, there’s no way we’re going to see that on store shelves.”

And it’s unlikely that production will be able to return to the US in the short term.

“We haven’t made televisions in the United States in decades,” Handley said, adding that U.S. factories also aren’t producing at the scale needed to meet consumption.

Trump claims previous tariff increases against China and other countries have not brought inflation.

But Handley estimates the supply chain tensions exporters faced equated to a 2 to 4 percent drop in tariffs – and companies told AFP they had to pass on some costs.

A 2019 article in the Journal of Economic Perspectives found that import tariffs added $3.2 billion per month in additional tax costs to U.S. consumers and importers by the end of 2018.

– redirect trade –

Trump’s tariff plans could also reduce U.S.-China bilateral trade by 70 percent and divert or eliminate hundreds of billions of dollars in exchanges, according to Oxford Economics.

U.S. trade volumes could be reduced by 10 percent and focused more on North America and other free trade agreement partners, the consultancy added.

While the additional tariffs would bring in around $500 billion in annual revenue, redirected trade from China could ultimately reduce that figure to closer to $200 billion a year, Yaros said.

Other proposals such as removing a status that shields China from various US taxes – “permanent normal trade relations” – could also increase inflation by 0.4 percentage points in 2025, PIIE added.

Although Trump wants a “reciprocal trade law” where “countries that let us pay a tax to do business with them have to pay the same tax when they ship their products to the United States,” Yaros thinks this is less likely, as it requires bipartisan support from Congress.

– food, energy –

Trump also regularly promises to eliminate inflation – a key concern for voters – and says he will cut energy bills in half within a year.

Analysts believe this is due to greater deregulation in the domestic oil and gas sector.

But Yaros expressed skepticism that this would “unleash significantly higher production” because it depends on large energy producers, who in turn have shareholders to whom they must answer.

While Trump wants to reduce food costs by allowing fewer foreign agricultural products into the country, economists have pointed out that import barriers could trigger retaliation.

This could hurt U.S. farmers who export heavily.

bys/dw