Mr. Trump’s tax blow could have a stronger impact than his first term

Mr. Donald Trump imposed tariffs on foreign goods during his first term, starting with solar batteries and washing machines in 2018. After that, steel and aluminum exported to the US were also subject to additional taxes, including those originating from copper. bright.

The most significant is the increase in tariffs on Chinese goods, leading to the US-China trade conflict. The two countries reached a deal in 2020, but China’s commitments to buy American goods never materialized.

When Trump took office in 2017, the federal government collected approximately $35 billion from import taxes and related fees. This number more than doubled, to nearly 71 billion USD in 2019, according to data from the Office of Management and Budget (OMB).

This level seems significant but compared to the size of the US economy, it is still small. The country’s gross domestic product (GDP) is currently about 29,300 billion USD, according to the US Bureau of Economic Analysis (BEA). That is, collected tariffs represent less than 0.3% of GDP.

Therefore, according to experts, the impact of taxes in the first term is almost unclear on the US economy. Studies suggest that the tariff war with China brings no economic benefits to communities affected by shifting production overseas.

Factory investment capital did not skyrocket as Mr. Trump’s goal of bringing jobs back. Instead, many American companies choose to find alternative suppliers to China. Studies also show that the world’s largest economy may have sacrificed some of its “soft power” as Chinese people watch less Hollywood movies.

However, this time experts warn that the President-elect’s tax threat may be different. Mr. Trump said he would impose a 25% import tax on all goods from Mexico and Canada, and an additional 10% tax on Chinese goods as soon as he takes office. This is to tighten drug control, especially fentanyl and illegal immigration.

“There will clearly be more tariffs,” said Michael Stumo, CEO of the Coalition for a Prosperous America – a group that advocates import tariffs to support domestic manufacturing.

Compared to his first term, the new tariffs proposed by Mr. Trump are large-scale and bring more significant impacts. If Mexico, Canada and China face the additional tariffs he recently announced, the amount of US tax revenue could reach $266 billion, not including trade disruptions and retaliation measures.

This cost will likely be paid by American families, importers, and domestic and foreign companies, through higher prices or lower profits. Melquiades Flores, owner of agricultural wholesale company M&M Tomatoes and Chile in Los Angeles, said customers will have to bear higher prices. “No matter how much tax they charge, prices increase and consumers bear the burden,” he said.

Goldman Sachs estimates core inflation based on the personal consumption expenditures price index (PCE) to increase 0.9% when the tariffs are implemented. Although inflation has cooled, the pace has slowed. Compared to the same period in 2023, PCE in October increased by 2.3% compared to 2.1% in September.

Joe Brusuelas, chief economist for the US market at auditing firm RSM, said the import channel of goods has contributed to reducing inflation in the past two years. “However, the possibility of price escalation leads to increased costs in the service sector,” he said.

Former Biden administration officials warned of businesses taking advantage of tax adjustments to increase commodity prices. This happened in 2022, when the Russia-Ukraine conflict created an opportunity for traders to push up food and energy prices.

“I am concerned about indiscriminate tariffs applied to many countries outside of China. This could create conditions for businesses to increase prices arbitrarily,” said Ms. Jen Harris, a former White House official under Biden. , currently Director of Economic and Social Initiatives at the William & Flora Hewlett Foundation commented.

The Democratic Party and business organizations also spoke out about the risks from Mr. Trump’s threats to impose taxes. House Democrats introduced legislation to strip the President of the ability to impose unilateral tariffs. They warn that they could lead to escalating prices for cars, shoes, housing and groceries.

In addition, Mr. Trump’s tariff threats create a sense of uncertainty, as companies and countries wait for specific adjustments to assess the extent of the impact.

“We know the key economic policy priorities of the incoming Trump administration, but we don’t know how or when they will be implemented,” commented Greg Daco, chief US market economist at EY-Parthenon. .

For the President-elect, taxes are a tool that has been tested in his first term and appears to be less politically controversial. The tariffs he imposed on Chinese goods were maintained and even expanded by President Joe Biden. Biden administration officials had considered lifting them to reduce inflationary pressures, but they realized they were unlikely to help significantly.

Michael Stumo said the tariffs were “so new and unique that they scared people in 2017”, but they are now considered part of the policy toolkit by the US and other countries.