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One theory about Donald Trump is that the more outrageous the statements he makes, the less effect they have (a verbal equivalent of what economists call diminishing returns).
However, his pronouncements on tariffs still have shock value. We must also be careful not to imagine that their threats are too absurd to take seriously.
In his presidential campaign he talked about tariffs of 10 to 20 percent on imported goods, reaching up to 60 percent for China and 25 percent for Mexico and Canada, unless they coincide with his desire to clamp down on immigration. illegal and drugs.
The president-elect denied US media reports that he may be toning down his plans and has stepped up his rhetoric.
His chest-thumping included a threat to impose tariffs on Denmark “at a very high level” if the nation resists his attempts to seize Greenland, a goal for which he has not ruled out the use of military force.
If Trump keeps his word, it could have unintended consequences. Danish pharmaceutical giant Novo Nordisk makes weight-loss injections and up to 30 percent of hearing aid imports to the United States come from Denmark, so Americans could end up deafer and fatter if these products get caught in the net. .
Diminishing returns: One theory about Donald Trump is that the more outrageous the statements he makes, the less effect they have
The objective of tariffs is simple: to penalize companies that import goods or components by forcing them to deliver a percentage of the price to the government.
The idea is instead to engineer a shift toward domestic producers, thereby protecting American jobs, rebuilding the manufacturing industry and boosting the economy. Trump claims this will generate huge revenues that could pay for tax cuts and social spending.
The word “tariff,” he says, is beautiful. Maybe, but there are unpleasant consequences.
If domestic producers can’t fill the gap left by imports, then consumers end up paying more because companies pass on some or all of their higher costs.
That raises inflation, which in turn keeps interest rates high. Tariffs can also curb exports, as companies shift to producing for the domestic market.
They create inefficiency: One of the main benefits of free trade is that each country focuses on what it is good at. Then there are retaliations.
A 2020 report found that in his previous term, Trump spent more taxpayer money on bailouts for farmers harmed by retaliatory Chinese tariffs than on building Navy ships or maintaining the nuclear arsenal.
Trump has weaponized tariffs and is behaving like a bully. What is less discussed is that Biden maintained most of those imposed in the first Trump administration and announced more on certain Chinese products in May of last year.
The Tax Foundation, a respected US think tank, estimated in a report last summer that the Trump-Biden taxes resulted in a reduction in US employment on the order of 142,000 full-time equivalent jobs.
It estimates that the proposed new tariffs – without taking into account retaliation – could cause the loss of an additional 344,000 people.
Tariffs can have a certain compelling appeal. Some might think it’s tempting to emulate Trump’s threat to slap John Deere, the tractor maker, with a 200 percent tariff over its plans to move production to Mexico.
There might have been joy if the UK government had done the same when, say, James Dyson moved manufacturing to Asia, but it would fizzle out when the cost of vacuum cleaners and hair-styling tools rose.
Tariffs are no magic wand to create a fairer and stronger economy in the United States than Labor’s tax rises here in the UK.
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