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Trump’s tariff obsession is a lose-lose proposition | Steven Greenhouse

I’ve been writing about manufacturing in the US since the 1980s, and it’s been heart-wrenching to report on dozens of factory closings and the devastation they have done to workers and communities. As the nation grasped for ways to slow these plant closings, I also wrote about Washington’s use of carefully employed trade measures, like targeted tariffs, and how they helped save some plants and jobs, especially in the steel industry.

Carefully targeted tariffs can be a winning strategy, but Donald Trump’s obsession with tariffs – especially across-the-board ones that are neither careful, nor targeted – has already shown itself to be a lose-lose strategy. Perhaps it’s too generous to use the word strategy to describe what the president is doing, because his tariffs seem based on fiat and whim, not on thoughtful planning.

Trump is like Elmer Fudd with his shotgun, shooting every which way: Canada today, China tomorrow and perhaps Champagne country the day after, with tariffs imposed one day, suspended the next and then re-imposed a few days later, but, wait, those re-imposed tariffs might be canceled next week. It’s a “strategy” of chaos and capriciousness, with some viciousness thrown in.

Obsessed as he is with tariffs, Trump calls tariffs “the greatest thing ever invented”, and “the most beautiful word in the dictionary”. He talks as if tariffs will create an economic nirvana, but the opposite is happening. Stock markets are plummeting, corporate confidence is tanking, consumers fear higher prices and economists warn the measures might push the US into recession.

Let’s count the ways Trump’s tariffs are a lose-lose proposition.

First, at a time when Americans are feeling beaten and bruised from the pandemic-era burst of inflation, the tariffs – which are really a tax on imports – will inevitably push up prices. Trump’s tariffs will hit less affluent Americans hardest because they spend a higher percentage of their income on clothes and other imported goods. Many of those Americans voted for Trump, believing him when he said he’d reduce prices.

Second, even though Trump boasts that tariffs will make American industry great again, it’s dubious whether Trump’s tariffs will do much to spur manufacturing. Trump has evidently forgotten that if you want to persuade corporations to build new factories – in this case, to bring back operations from overseas – then you need to reassure business executives that there will be economic and policy stability. But that’s the opposite of what Trump, the Emperor of Chaos, is all about. If you were a CEO, would you shell out $200m to build a new factory in the US in response to Trump’s tariffs when you know that Trump might lift those tariffs tomorrow or in two weeks or whenever a foreign leader flatters him or promises to let Eric and Don Jr build a Trump hotel at a beautiful seaside resort in their country?

Trump is eager for hundreds of companies to build new factories in the US, but with his on-again-off again, here today-gone-tomorrow tariffs, he has made many stability-craving CEOs too scared to build new plants. Moreover, if Trump wants to attract the manufacturing industries and jobs of tomorrow, he’s been shooting himself and the US in the foot with his ideological war against the industries of the future, including electric vehicles, renewable energy and semiconductors. Trump is even threatening to kill Biden’s hugely successful subsidy program to build sophisticated new semiconductor plants in the US.

Third, Trump’s tariffs are undermining economic growth; even Trump’s team has acknowledged the threat of recession. His tariffs are sabotaging supply chains, and that will disrupt production at many factories. His scattershot tariffs are so alarming companies that many are hesitating on plans to invest in new plant and equipment. That also undercuts growth. In addition, the widespread fears that tariffs will push inflation skyward have caused consumer sentiment to fall sharply. That could cause consumer spending, the major engine of the US economy, to decline.

Fourth, Trump’s tariffs are hitting various U.S. industries hard. Trump’s hefty 25% tariffs on steel and aluminum imports will hurt US auto makers by raising the cost of vital raw materials and making US-made cars less competitive vis-a-vis foreign automakers. Not only that, trade retaliation from Canada, Europe and China is already harming many US industries – including agriculture, motorcycles and Kentucky bourbon—and that, too, will push the economy toward recession. And let’s not forget that Trump’s tariffs are hurting the targeted countries, and that’s slowing their – and worldwide – economic growth.

Fifth, another big way we lose is that Trump, by slapping tariffs on Canada, Mexico and the European Union, has further angered and alienated many of our closest allies, and that comes on top of his disparaging Nato and increasingly allying the US with Russia. In this way, Trump may destroy the Atlantic Alliance, which has been pivotal for maintaining peace and prosperity, though not perfectly, since the second world war.

Sixth, any honest, fair-minded cost-benefit analysis will show that Trump’s tariffs will cause far more damage than gain. Although Trump says his tariffs will “create jobs like we have never seen before”, economic studies have found that the tariffs Trump imposed in his first term failed to increase the number of jobs. Those tariffs created a small number of jobs in some industries, but retaliation and supply-chain disruptions caused job losses in other industries. A study by economists at MIT, the World Bank, Harvard and the University of Zurich concluded that Trump’s first-term tariffs “neither raised nor lowered US employment” and didn’t “provide economic help to the US heartland”.

With Trump’s tariffs changing day to day, it’s impossible to predict how many jobs those tariffs will create or destroy. Thus far, his tariffs have caused US stock markets to lose $4tn in value, and those losses could grow. If Trump’s tariffs were to create 100,000 jobs, which some economists say is unrealistically optimistic, the cost would be an astronomical $40m per job ($4tn divided by 100,000). If his tariffs created 10,000 jobs, the cost would be $400m per job.

With Trump’s tariffs slowing economic growth, if they result in a 1 percentage point drop in annual GDP, that would mean a loss of $300bn a year in economic output. (1% of the nation’s $30tn GDP). If Trump’s tariffs yielded 100,000 jobs, the cost would be $3m per job. Or if Trump’s tariffs raise inflation by 1%, that would cost American consumers roughly $200bn a year – which would mean a cost of $2m per job created.

Returning to Elmer Fudd, his goal was always to shoot Bugs Bunny, but his gun often blew up in his face by mistake. With his tariffs, Elmer Trump seems well on his way to shooting the US economy by mistake.