Behind Trump’s tariffs, flawed math and global risks

Will Trump's tariffs make America great again? (Photo by Natilyn Hicks photography / Unsplash)

By ALINE SANTOS

Global Business Journalism reporter,

Beijing Foreign Studies University

U.S. President Donald Trump’s so-called “reciprocal tariffs,” which have hit more than 100 nations since early April, are deeply flawed economically and counterproductive politically, U.S. scholar Robert Blecker said during a recent lecture to Tsinghua University journalism students.

Blecker, a professor of economics at American University in Washington, said the policy was ego-driven and lacks reciprocity in its unilateral imposition. He acknowledged that globalization has caused economic pain, especially for American workers and small businesses. However, he argued that Trump’s tariff strategy is internally contradictory, as its four stated goals — reducing trade deficits, reshoring jobs, raising tax revenue, and serving as political bargaining chips — often work at cross-purposes.

Robert Blecker: “People aren’t wrong that trade has been a problem. We could have a discussion about on what is the best way to respond. I certainly do not think it's through these tariffs.”

“These goals are mutually inconsistent,” Blecker explained. “If you set the tariffs in a way to achieve one objective, you have to give up two or three of the others."

For example, imposing high tariffs to promote more jobs would reduce imports — which would also reduce tax revenue. If the focus is turned to maximize American tax revenue, it then makes the reshoring of U.S. industries less probable and decreases consumer demand, damaging tax collections, the professor said. 

Blecker said Trump’s view that the tariffs would reduce the U.S. merchandise trade deficit is the goal that makes the least sense, as American exports would drop if and when foreign countries retaliate. The result likely would be no net decrease in the pre-tariff trade balance.

With the current global value chain, high tariffs also make the reduction of trade deficits unlikely, as many domestic producers depend on parts and materials sold by foreign countries. Blecker mentioned Boeing as an example. With Rolls Royce engines being imported from the UK and other parts from China, Korea and other nations, the final jets would become more expensive because of these tariffs, making the U.S. less competitive in the global market for airplanes.

Blecker: Trump's tariffs make no economic sense

Trump announced tariffs of up to 100% on more than 100 countries, including most American allies, on April 3, a date he called "Liberation Day" for his country. He backtracked after the U.S. stock and bond markets and the U.S. dollar plunged. But he increased tariffs on China to as much as 145%.

Nations including China announced retaliatory tariffs in response to Trump’s unilateral action. The U.S. president said more than 70 countries (but not China) had agreed to enter trade and tariff negotiations with him.

The so-called “reciprocal” tariffs, Blecker argued, were arbitrarily calculated in a way that did not make economic sense and were not proportionate to the current trade deficit between countries. They are also not targeted on countries with barriers to U.S. imports, he added, stating that even small islands and impoverished exporters of vitally need raw materials — like Lesotho, with diamonds — were impacted.

“It was an easy calculation to do in the White House,” said Blecker. “You can give it to some computer geek and tell them to do it in a spreadsheet. And it makes no sense.”

Blecker said the tariffs are consequences of Trump’s “pathological narcissism” and nostalgia for an industrial past when America was the factory to the world. The worldwide consequences could be severe, he warned, and include higher consumer prices, supply chain disruptions, and potential global recession.

"It will be devastating for global supply chains," Blecker said of the tariffs. "Anything involving the U.S. is suddenly going to become more expensive or difficult."

Testing the limits of presidential power under the U.S. Constitution, Trump bypassed Congress by invoking vague laws that increase the president’s authority when national security is threatened in or emergency circumstances, Blecker explained,

While Trump’s tariffs are unpopular with economists and independent policy analysts, he is finding support from voters in regions battered by globalization. Blecker mentioned studies that link job losses from Chinese and Mexican imports to the rise of Republican votes in swing states like North Carolina and Michigan.

“People aren’t wrong that trade has been a problem,” Blecker said. “International trade has brought a lot of suffering for workers and small businesses ... We could have a discussion about what is the best way to respond. I certainly do not think it's through these tariffs.”

Implications for China

China, considered the biggest threat for the U.S. dominance by American policymakers, was among the higher tariffs originally announced by Trump: an increase of 34%, accumulating to 54% in exports. In response to Chinese retaliation, Trump raised some of the tariffs to 145%. China has continued to respond in kind to each round of Trump escalation.

Blecker said he believes China will face mixed economic results in this matter. Tariffs force painful adjustment, such as relocating supply chains, but they also create diplomatic and economic opportunities.

“The U.S. is stepping aside from leadership in the world economy and globally,” said Blecker. “And China could seek to move into that void.”

However, he cautioned that China, the world’s second-largest economy, is vulnerable to high tariffs because of its dependence on exports. Blecker said China must increase domestic demand and decrease its emphasis on export-driven growth.

"China ... needs to adjust its economic strategy to be less reliant on exports," he said.