Trump Promises Brutal Tariffs - Consumers Need to Brace Themselves

In some ways Donald Trump has an animal-like cunning, but when it comes to economics, like many narcissists, he thinks he knows everything when in reality he does not.  This may explain in part his six corporate bankruptcies.   It certainly applies to his vows to place punishing tariffs on imported goods which will ultimately be paid by American consumers, many of whom believed Trump's lies that foreign nations would pay the tariffs. History and the reality that corporations will not  simply sit back take the financial hit from 25% increases in import costs tell otherwise.  It will give some - yours truly included - perverse satisfaction to see low information voters who voted for Trump supposedly due to worries over higher prices suddenly find items from Mexico and Canada, not to mention China, costing 25% more.   With lumber from Canada shooting in prices, new construction of homes will rise further as will the price of cars manufactured in Mexico.  Add in the labor chaos that Trump's mass deportation plans will have on migrants harvesting American food and working in the construction industry, and post-Covid inflation may look mild in overall comparison. A piece at CNN looks at the like coming price surge.  Here are highlights:

President-elect Donald Trump on Monday promised massive hikes in tariffs on goods coming from Mexico, Canada and China starting on the first day of his administration, a policy that could sharply increase costs for American businesses and consumers.

The move, Trump said, will be in retaliation for illegal immigration and “crime and drugs” coming across the border.

“On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders,” Trump posted on his Truth Social platform. “This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!”

Similarly, Trump said that China will face higher tariffs on its goods – by 10% above any existing tariffs – until it prevents the flow of illegal drugs into the United States. . . . . The president-elect claimed in the post that Chinese officials promised him the country would execute drug dealers caught funneling drugs into the United States but “never followed through.”

Responding to Trump’s announcement, Chinese Embassy spokesperson Liu Pengyu said his country has been in communication with the US about counternarcotics operations and that “the idea of China knowingly allowing fentanyl precursors to flow into the United States runs completely counter to facts and reality.”

“About the issue of US tariffs on China, China believes that China-Us economic and trade cooperation is mutually beneficial in nature. No one will win a trade war or a tariff war,” Liu said in a statement to CNN.

The punishing tariffs, if enacted, could wreak havoc on America’s supply chains and industries reliant on goods from the country’s closest trading partners.

“The measures proposed this evening could hit a number of strategic US industrial sectors hard, add approximately $272 billion a year to tax burdens, raise goods prices, lift interest rates, and sap strength in an already-vulnerable household sector,” said Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions.

Although investors believed the tariffs could ultimately strengthen the dollar, America’s financial markets took a hit, too. The extraordinary tariffs would raise costs dramatically for Americans for everyday goods that had previously come over the border without any import taxes.

That stunning shift could stymie economic growth, especially if inflation-weary consumers spend less in the face of higher costs.

US stock futures, which were higher before Trump’s announcement, fell somewhat – Dow futures were down 160 points, or 0.3%. Nasdaq futures were 0.4% lower, and the broader S&P 500 was also down 0.4%. US Treasury bond prices fell.

The United States’ top import from Canada is oil, which reached a record 4.3 million barrels per day in July, according to the US Energy Information Administration. America also imports cars, machinery and other various commodities, plastics and wood from Canada, according to the United Nations’ Comtrade.

America gets the majority of its cars and car parts from Mexico, which surpassed China as the top exporter to the US in 2023, according to trade data released by the Commerce Department earlier this year. Mexico is also a major supplier of electronics, machinery, oil and optical apparatus, and a significant amount of furniture and alcohol comes from the country into the United States.

The United States imports a significant amount of electronics from China, in addition to machinery, toys, games, sports equipment, furniture and plastics.

Tariffs effectively serve as a tax on goods imported to the United States. Although Trump has repeatedly said targeted foreign countries pay the tariffs, they are in fact paid by companies that purchase the imported goods – and those costs are typically passed onto American consumers. Most mainstream economists believe tariffs will be inflationary, and the Peterson Institute for International Economics has estimated Trump’s proposed tariffs would cost the typical US household over $2,600 a year.

Scott Bessent, Trump’s pick for Treasury secretary, has said that tariffs would not add to inflation if they are implemented correctly. Wall Street cheered Bessent’s appointment, because he is widely expected to roll out tariffs gradually.

Although Bessent, if confirmed by the Senate, will be partly responsible for implementing the tariffs, in coordination with the Commerce secretary and US Trade Representative, Trump as president would wield significant power to levy tariffs with the stroke of a pen. He did just that when he was last in the White House, placing large tariffs on goods, primarily from China.

The problem with tariffs is that they often result in retaliatory actions by targeted countries, kicking off a trade war – and that’s exactly what happened during Trump’s first term. That blunted the tariffs’ effect on domestic manufacturing, because manufacturers’ goods became less attractive to overseas buyers.

Trump has promised significantly larger tariffs during his second term. Although he continues to discuss many different numbers, he has proposed a tariff upward of 60% on all Chinese goods, as well as an across-the-board tariff of either 10% or 20% on all other imports into the US.

A second CNN piece looks at impact on the national debt:

The Committee for a Responsible Federal Budget estimated in October that Trump’s tariff plan would not generate enough revenue to pay for his other spending proposals.

Ultimately, the group estimated that Trump’s proposals would add $7.75 trillion to the national debt over the next decade. 

I can't wait to see Trump voters scream and whine when prices soar - thanks to their own doing.  Karma can be a bitch.