Tariff tweets trigger concerns
Taxes on U.S. firms could result in higher prices — or recession
Economists warn Trump’s tax proposals will cost U.S. jobs
In 2009, President Obama raised tariffs on car tires made in China, charging that domestic competitors were hurt by imports. Ranging from 25% to 35% for a period of three years, the tariffs saved about 1,200 jobs, according to an analysis by the Peterson Institute.
But there were consequences. Tire prices rose in the U.S. And with Americans paying more for tires, spending on other retail goods fell, ultimately costing the U.S. economy around 2,531 jobs, the institute estimates.
In addition to questioning the legality and feasibility of trade policy that Donald Trump has tweeted in recent days, experts in the field and economists also warn of negative spillover from the president-elect’s threats on Twitter to impose a 35% tariff on U.S. companies shipping jobs abroad.
The potential fallout, they say, could include legal battles, higher prices for U.S. consumers and pushing the U.S. into a recession.
Specifically, the president-elect said Sunday that the tax would be
levied on the goods of American companies closing U.S. factories to ship jobs abroad.
“Any business that leaves our country for another country, fires its employees, builds a new factory or plant in the other country, and then thinks it will sell its product back into the U.S. without retribution or consequence, is wrong,” he wrote in a series of tweets. “There will be a tax on our soon to be strong border of 35% for these companies.”
Like Trump’s other quasi-policy tweets, the message left many trade experts baffled.
A unilateral move by the president to impose taxes on a specific company is unheard of, if not illegal. And tariffs could trigger consequences far beyond envisioned at the onset.
While he’s seemingly referring to American companies, it is also unclear if the restriction he calls for refers only to those contemplating closing current domestic factories or generally discouraging manufacturing abroad. Trump made no distinction among large companies with their own factories or those who outsource assembly to foreign partners.
“I think this is more an idle threat rather than a viable policy option,” says Paul Ashworth, chief U.S. economist at Capital Economics. “It’s just too complicated and discriminatory to implement. And why would you only punish U.S.-owned businesses? Makes no sense.”
Experts also question the range of legal powers of Trump in trade matters once he assumes the White House in January. The U.S. Customs and Border Protection, which is part of the Department of Homeland Security, administers trade policy enforcement. And the agency can apply tariffs based on country and product-specific categories, notes Robert Scott, senior economist at the Economic Policy Institute.
Company-specific penalties are imposed only when the Commerce Department concludes that a foreign exporter is undercutting prices in the U.S. or being unfairly subsidized, thus violating U.S. anti-dumping and countervailing duty laws.
“I have no knowledge of any existing executive authority that will allow the president to apply any company-specific tariffs,” Scott says.
Still, a U.S. president has a variety of ways to initiate trade disputes, notes Gary Hufbauer, an economist at the Peterson Institute for International Economics. “The president can impose import restrictions after a finding that national security is at risk,” he says in a recent research note.
If Trump resorts to such measures, legal challenges by companies will surely follow. “If threats turn into actual restrictions, the U.S. can expect legal battles in the World Trade Organization,” Hufbauer says.
Trump’s move to impose a 35% tariff would have serious economic implications stemming from reactions abroad, economists say. The countries that are affected — say, a factory shuttered abroad — could impose higher tariffs on U.S. exports, making goods shipped from American factories more expensive.
Reimported goods made by American companies abroad, carrying a 35% tariff, would obviously be priced higher, and that could also move domestic competitors to raises prices and generally lower consumers’ buying power. “It would push us into a recession,” Scott says.
Even House Majority Leader Kevin McCarthy, R-Calif., sought to fend off tariff talks. When pressed by reporters earlier this week, he said he prefers avoiding tariffs to deal with American corporations fleeing the U.S. “The best way to make that change is through tax reform,” McCarthy said.
“I have no knowledge of any existing executive authority that will allow the president to apply any company-specific tariffs.”
Robert Scott, senior economist, Economic Policy Institute