After imposing tariffs on Canada, Mexico and the European Union, Trump on Friday instituted $34 billion in tariffs against China. China immediately retaliated.
Trump claims that trade wars are good and easy to win. Trump believes that other countries will concede because the U.S. is the largest consumer economy. That is not the history of tariffs. As more than 1,100 economists, including 14 Nobel laureates wrote in a letter to Trump two months ago, tariffs lead to retaliation by other countries and greatly deepened the Great Depression in the 1930’s. Trump’s trade wars could well lead to a recession.
China has even proposed an alliance with the EU in responding to Trump’s tariffs, although for now the EU is rejecting that approach.
Trump is far from finished. He is threatening 20% tariffs on imported cars and car parts. That would immediately drain $14 billion from the U.S. economy and, as other countries retaliate, nearly $300 billion in U.S. products could be affected. The EU has announced it will impose 25% duties in July for tariffs Trump has already declared. Trump is also planning another $200 billion in tariffs in September on Chinese products.
The Chinese retaliatory duties are largely aimed at Trump supporters, including farmers and manufacturers in the Midwest. More than half of U.S. soybeans go to China and the threats of tariffs have already pushed down the price of soybeans by 15% when the profit margin is only 8% to 12%.
On the manufacturing side, prior to this latest round of Trump tariffs, General Motors said additional tariffs could lead to the loss of U.S. jobs.
Democrats such as Senator Heidi Heitkamp (D-North Dakota) see opportunities in farming communities for the fall elections in opposing Trump’s tariffs. Other Democrats plan to gain support among the working class affected by manufacturing job loss.
One might expect Republicans to oppose the Trump tariffs. Most Republicans are long-time supporters of free trade. They also believe voter optimism regarding the economy is key to GOP hopes for retaining both houses of Congress in the midterm elections. Yet most are too fearful of Trump’s wrath to back legislation preventing Trump’s tariffs. As Republican Senator Bob Corker said in disgust, they are afraid to “poke the bear.”
With Republicans too timid to act, Trump will continue escalating his tariffs. Like Napoleon and Hitler deciding to invade Russia, Trump has supreme belief in his own instincts even when that leads to disaster. Trump’s trade war will harm U.S. farmers and factory workers – and the U.S. economy – but it may give the Democrats victory in November.