While much of the American electorate debates Donald Trump’s culpability on 91 criminal charges, economists are enduring post-traumatic flashbacks stemming from the trade war Trump perpetuated when he was president — because Trump wants to go even further if he wins a second term.
With the 2024 primary elections about to get underway, Trump’s policy proposals for a second term are starting to draw serious scrutiny. One of them is a new 10% tariff on nearly all imports to the United States— which total roughly $4 trillion per year — as part of the most protectionist agenda since the 1930s. Since Trump is the leading Republican contender, and also favored in some polls to beat President Joe Biden in the general election, Trump Trade War 2.0 is a real possibility for 2025.
Economists are highlighting the possible damage, just as they did in 2016, when Trump proposed import tariffs as high as 45%. “Trump’s signature policies would lead to price spikes,” Michael Strain of the right-leaning American Enterprise Institute argues. “They would lead to substantial economic disruption. They would hurt workers and households.”
A familiar dispute is erupting between traditional free-trade Republicans and fringier isolationists emboldened by Trump’s grip on the GOP. On Jan. 2, the Reaganite Wall Street Journal editorial page called Trump’s proposed tariffs ”folly” while citing a raft of studies showing that Trump’s first set of tariffs failed to accomplish their objectives. The Journal attacked Trump’s top trade official, Robert Lighthizer, as a hubristic trade foe who “praises the virtues of inefficiency.”
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Lighthizer clapped back five days later, saying the Journal’s analysis was “fundamentally wrong” and arguing that tariffs are necessary to preserve national wealth. If Trump wins again in 2024, Lighthizer could end up just as influential as he was while promulgating Trump’s first set of tariffs.
A subtheme of the renewed tariff dispute is what to do about China. Trump and Lighthizer obsessed over the US trade deficit with China, which soared from $81 billion in 2001, when China joined the world’s free-trade regime, to $337 billion when Trump took office in 2017. As president, Trump imposed tariffs on several sets of imports, including steel and aluminum from many nations, along with washing machines.
But Trump targeted China more than anyplace else, with tariffs as high as 25% on about half of all goods imported from China to the United States, or about $225 billion worth of goods in 2019. Those tariffs mostly targeted intermediate goods used as components in other products, such as semiconductors and computer hardware, so that the higher cost would be absorbed by producers and not be immediately apparent to American consumers.
Trump exempted finished products such as toys, smartphones, gaming consoles and laptops, where the cost of tariffs would be passed on directly to consumers. Trump’s intent, aside from lowering the US trade deficit with China, was to make imported goods more expensive, as a way to encourage more “reshoring” and boost US manufacturing.
Economists argued this would never work, and developments since Trump enacted the tariffs in 2018 and 2019 broadly bear that out. When Biden took office in 2021, he repealed most of the Trump tariffs except those relating to China, which he kept in place. So there’s now several years of data showing how Trump-style protectionism related specifically to China worked in the real world.
Instead of plummeting, as Trump hoped, US imports from China reached a record high in 2022, at $563 billion, about 1% higher than the prior record, in 2018. Research by Chad Bown at the Peterson Institute for International Economics shows that imports of Chinese products subject to the new tariffs fell 25% from 2018 to 2022, with imports of those products from other countries rising by 40%. But US imports of Chinese products not subject to Trump’s tariffs rose by 42% from 2018 to 2022.
So a boom in imports not subject to the new Trump tariffs counteracted the drop in imports of newly tariffed products. And some Chinese manufacturers simply routed their products through other countries, such as Vietnam, to avoid the new tariffs.
As economists foretold, there was no apparent pickup in American production. US industrial output peaked in 2018, as Trump’s trade war was intensifying, then declined in 2019, when the Trump tariffs were in full effect. Output plummeted in 2020 as the COVID pandemic distorted everything, but is now almost back to the 2018 peak.
US manufacturing employment followed a similar trajectory, rising gradually from 2010 through 2019, then dropping slightly during the months prior to the COVID outbreak. There’s simply no data showing any kind of US manufacturing boost from the Trump tariffs. Meanwhile, numerous studies have found that the Trump tariffs raised costs across many industries, killed a quarter-million American jobs, and pushed prices of many goods higher.
While Biden has kept Trump’s China tariffs in place, his approach toward China is actually quite different from Trump’s. Biden has tried to check China’s growing military and economic power by restricting China’s access to advanced US technology that can be used in sophisticated weapons and supercomputers. Biden has also backed and signed Congressional legislation to incentivize more US production of critical technology such as advanced semiconductors, green energy technology, and electric vehicle components. Beyond that, Biden seems unconcerned about the US trade deficit with China or how many Chinese-made vacuum cleaners or toasters Americans buy.
Trump seems more interested in breaking the deep links between the US and Chinese economies once and for all. “Biden seeks to de-risk but not decouple the US economy from China’s,” Leslie Vinjamuri wrote for Foreign Policy in a Jan. 3 preview of the 2024 election stakes. “A return of Trump could see the former president and his team attempt to implement a wholesale decoupling of the two most powerful economies. Were Trump to return to office, the consequences for U.S.-China relations would be severe.”
As with Trump’s first tranche of tariffs, economists broadly agree that a new 10% tax on all imports would damage the US economy and raise costs for consumers. The Tax Foundation calls it a tax increase on Americans that would total about $300 billion a year. The American Action Forum estimates the new tariffs would cut US GDP by $62 billion per year, assuming other nations retaliated in like fashion, as they normally do. Strain of AEI says the higher prices caused by Trump’s tariffs would undermine Trump’s own complaint about Biden’s “inflation catastrophe.”
So why does Trump even want to revisit what is broadly viewed as policy failure from his first term? On his website, Trump perpetuates the fiction that foreign producers, not US importers and consumers, pay tariffs, while insisting he will end US reliance on China. He also points out that tariffs were the US government’s chief source of revenue before income taxes arrived in the early 1900s, as if we’ve learned nothing during the last 100 years. Maybe Trump’s signature slogan, “Make America great again,” refers to the glory days of the 1800s.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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