Why does Mr. Trump like to impose import taxes?

On November 30, President-elect Donald Trump wrote on the social network Truth Social that he would impose a 100% import tax on goods from 9 countries belonging to the BRICS group, if they threaten the position of the US dollar.

“If they create a common currency for the BRICS group, or use another currency to replace the USD, they will be subject to a 100% import tax and have to give up the opportunity to sell goods to the US,” Trump wrote.

BRICS is a group of emerging economies that accounts for more than 40% of the global population and about a quarter of world GDP, with members Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and United Arab Emirates.

A few days earlier, he also threatened to impose a 25% import tax on all Mexican and Canadian goods and an additional 10% tax on Chinese goods. This is to control illegal immigrants and drug trafficking activities from the above countries into the US.

During the election campaign, Trump also proposed a 10% import tax on all products entering the US. China alone may be subject to 60-100% pressure. Even from his first term, the US President-elect launched a trade war with China, increasing import tariffs to 25% on $350 billion of this country’s goods.

Import taxes are Mr. Trump’s favorite tool. He repeatedly publicized this opinion to the media and called himself a “tariff man”. In an interview with Bloomberg at the Economic Club of Chicago in October, he also claimed to love the word “import tax”.

Trump’s trade protectionism is a source of concern for many analysts and economists. They believe that America’s trading partners will retaliate, thereby slowing down economic growth, sparking inflation and sparking a large-scale trade war.

However, Trump and the officials he nominated, including Scott Bessent – chosen for the position of US Treasury Secretary, affirmed that import taxes in his first term did not spark inflation. Besides, the benefits can far outweigh the negative effects.

Protect American manufacturing was the first reason Mr. Trump gave to explain his decision to impose import tariffs. The president-elect believes that imposing import tariffs on trading partners will help protect American businesses, at a time when domestic manufacturing employment has plummeted from its 1979 peak.

Based on that criterion, the import tax announced by Mr. Trump for the 2018-2019 period partly achieves this goal. The Brookings Institution says there is evidence that employment in specific industries has increased. For example, import tariffs on washing machines have created 1,800 new jobs in the US, at businesses such as Whirlpool and many others.

However, if we ignore this impact, research by the US Federal Reserve (Fed) shows that companies face higher costs, from raw material purchases to retaliatory taxes from countries. Overall manufacturing employment also fell about 2% during Trump’s first term. However, analysts admit that there are many factors influencing this decline.

“Our research shows that import tariffs do not increase employment or output, but do increase producer prices,” the Fed said.

Foreign manufacturers open factories in the USis what Mr. Trump wants when imposing large-scale import taxes. “The higher the import tax, the more likely businesses are to come to the US to build factories,” the President-elect said on Bloomberg in October.

Although admitting this possibility could happen, analysts say changes will take many years and cannot be “immediate” as Trump asserts. Because this decision depends on many factors, such as supply chain, transportation costs, labor resources and management policies.

In addition, some businesses plan to move production locations because of import taxes, but this is not necessarily beneficial for the US. For example, shoe company Steve Madden said that if Mr. Trump imposes tariffs on goods from China, they will move production to countries like Cambodia or Vietnam.

Mr. Trump also praised import taxes as a way to help create new revenue sources for the budgetoffsetting the reduction in domestic taxes. According to the tax research organization Tax Foundation, during Trump’s first term, import taxes helped the US budget add an additional 80 billion USD.

The number this time could be much larger. If Mr. Trump imposes a 10% import tax on all goods entering the US, the federal budget will have an additional $2,000 billion in the period 2025-2034, the Tax Foundation said.

According to Goldman Sachs, taxes imposed on Mexico, Canada and China will generate an additional $300 billion per year. Currently, about 43% of imports into the US come from these three countries.

However, experts see that this source of revenue mainly comes from American businesses and consumers. Because import taxes will often be borne by companies in the US, said Vicky Redwood – analyst at Capital Economics. For example, Walmart will have to decide whether to accept reduced profits, or increase prices to shift the tax burden to consumers.

“If costs are shifted down, customers must choose to continue buying high-priced imported goods or switch to domestic goods – which are more expensive than imports before the tax is imposed,” Redwood explained.

An August study by the Peterson Institute for International Economics found that Mr. Trump’s import tariffs would cost each American family an additional $2,600 per year.

Ultimately, what the US President-elect wants to increase import taxes is stop the wave of illegal immigration and drug trafficking into this country.

Mr. Trump earlier this week affirmed that he would maintain tariffs until Mexico, Canada, and China tighten drug control, especially fentanyl, and control the flow of migrants illegally crossing the border into the US. Currently, the majority of fentanyl in the US is shipped from Mexico.

Although it is possible that the three countries will tighten regulations to avoid Trump imposing additional taxes, it is unclear whether the threat will help him achieve this goal. Earlier this week, Mexican President Claudia Sheinbaum said imposing import taxes would cost the US 400,000 jobs and receive retaliation from the neighboring country. She also affirmed that she is always ready to discuss US issues with Trump.