Image Source: Pixabay
 

The pre-shocks have begun. But the big shock is on deck.

Biggest Tariff Shock Since the Great Depression

The Washington Post reports Trump Aides Prep New Tariffs on Imports Worth Trillions for ‘Liberation Day’.

White House aides are preparing to impose new tariffs on most imports on April 2, laying the groundwork for an escalation in global economic hostilities that President Donald Trump has called “Liberation Day.”

 A person familiar with internal planning, speaking on the condition of anonymity to reflect private deliberations, confirmed administration officials are preparing tariffs on “trillions” of dollars in imports.

“It’s a liberation day for our country because we’re going to be getting back a lot of the wealth that we so foolishly gave up to other countries, including friend and foe,” Trump told reporters on Monday.

 Trump has said the U.S. should match these tariffs with “reciprocal” duties that he believes will force other countries to lower their duties on U.S.-made products.

“If India, China, or any other country hits us with a 100 or 200 percent tariff on American-made goods, we will hit them with the same exact tariff,” Trump said in a video released during the presidential campaign. “In other words, 100 percent is 100 percent. If they charge us, we charge them — an eye for an eye, a tariff for a tariff, same exact amount.”

On a trade-weighted basis, the average U.S. tariff is 2.2 percent. Japan’s is 1.9 percent and the European Union’s is 2.7 percent, slightly higher than the U.S. average, according to the World Trade Organization.

Administration officials are debating what legal authority the president can invoke to impose a reciprocal system, according to one person familiar with the matter, who spoke on the condition of anonymity to discuss internal deliberations.

Trump has the power under existing trade laws to impose some tariffs immediately, such as on goods from China, which are covered under a 2018 investigation of Chinese trade practices. A 1930 trade law permits the president to impose tariffs of up to 50 percent on goods from a country that he determines has discriminated against U.S. goods.

Imposing new import taxes on other goods could require months of preparatory work. Jamieson Greer, the president’s chief trade representative, and Secretary of State Marco Rubio are among those most attuned to the legal issues surrounding Trump’s plan, wanting any action to survive a courtroom challenge, the person said. Navarro, the White House senior counselor for trade and manufacturing, is among those pushing for swift and aggressive action, the person said.

Spokesman Kush Desai said in a statement. “President Trump has assembled the best and brightest trade team in modern American history to reignite American Greatness, and they are hard at work following the same playbook.”

On Tuesday, the government said manufacturing output in February rose sharply, reaching its highest level in more than two years. But analysts said the jump was probably a temporary reaction to the flurry of presidential tariff announcements.

“Manufacturers raced to produce goods in February before large tariffs on imports could be imposed, as well as to meet a temporary tariff-induced spike in orders from households and businesses,” wrote Samuel Tombs, chief U.S. economist for Pantheon Macroeconomics. [That was my theory as well]

Prepare for Liberation

Trump is about to liberate consumers from their money and countless small businesses from their companies.

“People are still underestimating how big Trump’s plans are for tariffs on April 2. (or soon thereafter),” says Heather Long, Washington Post economic writer.

Tariffs Reduce Income

Erica York VP of Federal tax policy at the Tax Foundation made four pertinent comments.

• Tariffs reduce output and lead to either a reduction in nominal incomes or, depending on the Fed, an increase in the overall price level.
• A consumption tax can lead to increases in the general price level in the economy or to reductions in nominal wages and profit rates.
• For wage earners, the distinction is unimportant, because they face the same reduction in buying power whether their nominal wage falls or the prices they face increase.
• Contrary to the president’s promises, his tariffs will cause short-term pain and long-term pain, even with the ways people and businesses change their behavior.

Time (or Buying American) Won’t Erase the Economic Harm of Higher Tariffs

Please consider Time (or Buying American) Won’t Erase the Economic Harm of Higher Tariffs by Erica York.

Key Points

• While tariffs would raise revenue for the US government, that revenue would come at a high cost to the American economy overall.
• Tariffs are redistributive. Some domestic producers benefit but at the expense of other people and businesses in the domestic economy.
• History shows tariffs raise costs and prices and lead to lasting economic harm, such as lower production and living standards, whether we keep importing goods or switch to domestic alternatives.

President Trump acknowledges his tariffs will “short term [cause] some little pain” but claims they’ll be “worth the price that must be paid.” Trump is right that his tariffs will cause “a little disturbance,” but unfortunately, he’s wrong that with time tariffs will bring wealth and jobs creation.

History shows tariffs lead to lasting economic harm, such as lower production and incomes. Data from 151 countries from 1963 through 2014 shows higher tariffs reduce output and productivity, increase unemployment, and worsen inequality. Studies of US tariffs in 2018-2019 confirm they failed to boost employment and instead harmed manufacturing due to rising input costs and foreign retaliation.

When the United States imposes a tariff, it increases the price of imported goods for people and businesses in the United States. (In recent experience, import prices increased by nearly the full amount of the tariff, but even with less than complete “pass-through” of tariffs, import prices would rise.) Higher prices make us import less (which harms foreign businesses as US sales fall), but US production does not automatically grow as a result.

For this reason, tariffs are redistributive. They discourage purchases of foreign-produced goods, encourage buyers to switch to higher-priced domestically-produced goods, and place a burden on US exporters. Some domestic producers benefit but at the expense of other people and businesses in the domestic economy.

The tough choices and trade-offs do not go away in the long run. Instead, over time, tariffs tend to diminish productivity, decreasing how much output we get for the time and resources used. 

For instance, the United States is the largest exporter of aircraft, and the largest importer of textiles. Higher tariffs would incentivize manufacturing activity to move from aircraft and toward textile production, so we would producer fewer airplanes for export and more T-shirts for domestic consumption.

Similar shifts would occur across the economy, incentivizing more resources to be used in producing lower-end goods we previously imported at lower prices. Increasing prices we pay for the same goods has the same effect on people as lowering their wages. Consider a real-world example of washing machine tariffs put in place in 2018 under the first Trump administration: the tariffs supported the creation of about 1,800 new factory jobs (with wages starting at $16 per hour) at a cost to US consumers of $800,000 per job.

A Clear Explanation of How Reciprocal Tariffs Will Work

In case you missed it, please consider A Clear Explanation of How Reciprocal Tariffs Will Work

There are many conflicting reports on what “reciprocal” means, but I condense things down to the core idea.

Related Posts

March 4, 2025: A Global Trade War Has Started – Global Recession Will Follow

The most significant global trade war since Smoot-Hawley and the Great Depression is underway.

March 9, 2025: Cheese Was a “Key Achievement” of Trump’s USMCA Trade Agreement

Trump is complaining about Canada’s cheese tariffs. In 2018, he was bragging about cheese.

That post is a real hoot. Please give it a look.

March 16, 2025: Trump Wants a Weak Dollar But Needs a Strong One

Trump wants the Fed to cut interest rates to weaken the dollar and boost exports. But that’s not what helped him get elected.

For discussion of the small business hit, please see How One Small Business Owner Is Coping With Trump’s Tariffs

Fifty-four percent of small businesses polled said that tariffs would negatively affect their companies, while just 11 percent said they would benefit.

Please read the above post and multiply it by tens of thousands of small businesses.

It’s exactly the kind of thing Erica York is writing about.

More By This Author: