Blog by Thomas Jachemczyk, Senior Associate
At the time of this article, the election results have declared Donald J. Trump as the 47th president of the United States of America. With this announcement, many people have justifiable concerns about what he is going to do in office, considering the conservative Supreme Court and the now GOP-controlled Senate (and possibly) the House of Representatives.
Donald J. Trump has had a demonstrated dislike towards the various international institutions and customs that make up modern global politics. In his first term, he withdrew from the Iran nuclear deal,[1] has continued to antagonize our allies,[2] and has shown dissatisfaction with NATO on multiple occasions.[3]
However, the most damaging aspect of his foreign policy thus far has been his archaic use of trade tariffs to protect domestic producers from foreign industry. Since the end of World War II, global foreign policy was done with the basic assumption that countries that trade together do not go to war with each other.[4] Hence, the primary purpose of the General Agreement on Tariffs and Trade (“GATT”) and the creation of the World Trade Organization (“WTO”) was to eliminate trade barriers as much as possible (prominently disallowing most quantitative restrictions via Article XI)[5] and by giving countries a proper forum to settle trade disagreements.
And for the most part, it has worked. However, President Trump’s first term saw a regression back to an old way of thinking, when countries were divided, and Tariffs were the primary method of trade regulation. In 2017, the president used his section 232 powers to mobilize the Department of Commerce to investigate the national security impact of Steel and Aluminum imports. As a result, he applied a 25% tariff on steel, and a 10% tariff on aluminum. The results? Steel prices for U.S. firms increased.[6] The downstream effects are obvious (steel costs more here, so things that need steel cost more to make), but U.S. exports suffered as well, with firms struggling to compete with foreign firms who can purchase their steel cheaper from someplace else.[7]
Tariffs are not the solution that the President has made them out to be, which makes it more troubling that he is now hoping to do more. He has stated that he wants a 60% tariff on goods from China and a 20% tariff on everything else the United States imports.[8] These are insanely high numbers – just the 20% universal tariff would cost a family nearly $4,000 a year.[9] Tariffs are not popular for this reason, while they may achieve the goal of stopping foreign import of a certain good, the cost always ends up coming back to the consumer. A universal tariff could see prices on normal everyday objects soar, only further hurting already stressed families.
They also have the effect of causing our allies to hate us. Tariffs always lead to retaliatory tariffs being imposed in turn. When Trump first passed down the steel and aluminum tariffs, the EU put tariffs on American motorcycles, bourbon, whisky, and boats.[10] Trump’s tariffs on Chinese goods led to China putting a 25% tariff on all US Goods.[11]
These conflicts are inevitable, and now President-Elect Trump is in a position to impose more tariffs. Admittedly, in reality they might not be as harsh as he has promised on the campaign trail – only because such high tariffs would be a very hard objective to sell politically to constituents. However, Donald J. Trump is a spoken advocate for more tariffs, which means that consumers face a risk of ever-increasing prices in an already very harsh economy. The aim to protect domestic industries and promote economic wellbeing, will not be accomplished by shunning our allies with unnecessary antagonism.
[1] Tack Beauchamp, Trump’s withdrawal from the Iran nuclear deal, explained, Vox (May 8, 2018), https://www.vox.com/world/2018/5/8/17328520/iran-nuclear-deal-trump-withdraw.
[2] Alex Ward, Trump said “NATO is as bad as NAFTA.” That’s Scary., VOX (Jun. 28, 2018), https://www.vox.com/2018/6/28/17513972/trump-nato-russia-putin-nafta.
[3] Id.
[4] Bob Yirka, Study suggests a rise in number of trading partners leads to fewer wars between nations, Phys.org (Dec. 15, 2015), https://phys.org/news/2015-12-partners-wars-nations.html – :~:text=Based%20on%20the%20model%20we%20also%20examine%20some,they%20will%20go%20to%20war%20with%20each%20other.
[5] General Agreement on Tariffs and Trade, art. XI, Oct. 30, 1947.
[6] Making Sen$e, Steel tariffs hurt manufacturers downstream, data shows, PBS News (Feb. 7, 2020), https://www.pbs.org/newshour/economy/making-sense/steel-tariffs-hurt-manufacturers-downstream-data-shows.
[7] Id.
[8] Id.
[9] Id.
[10] Phillip Blenkinsop, EU, U.S. extend steel tariff détente until end-March 2025, Reuters (Dec. 19, 2023), https://www.reuters.com/markets/commodities/eu-us-extend-steel-tariff-detente-until-end-march-2025-2023-12-19/%20-.%20:~:text=The%20European%20Union%20and%20the%20United%20States%20have,retaliatory%20measures%2C%20the%20European%20Commission%20said%20on%20Tuesday.
[11]A quick guide to the US-China trade war, BBC (Jan. 15, 2020), https://www.bbc.com/news/business-45899310.