President Trump has started his term off fast, implementing hefty tariffs on the top three importers and exporters of American goods, Mexico, Canada and China, as well as various other industries and goods. The tariffs are an attempt to lessen the United States’ trade deficit and spark a revival of domestic production. In the best case the tariffs cause a revival of American manufacturing and in the worst case the U.S. experiences increased consumer prices and a shrinking GDP.
It’s hard to tell exactly what the impact of the tariffs will be, especially with the scattered roll out and roll backs of the tariffs. UMass economics professor Arslan Razmi says we don’t have enough information right now but, “six months from now we’ll have a much better picture of whether these moves were part of a well thought out plan, or the chaos of an incoming administration.”
To understand the impact of the tariffs, it’s first important to understand how they work. Tariffs act as a tax on a product. So, if the U.S. imposes 10 percent tariffs on China and a U.S. company imports a $1,000 cell phone from China, that U.S. company has to pay $1,100 dollars and the extra $100 tax would go to the U.S. government.
“Who pays [the tax] is a little less clear. In many cases it’s the importer that pays it,” Razmi says. But sometimes the exporter will lower the cost of the product. Walmart has reportedly asked Chinese suppliers to cut costs on products affected by the tariffs put in place.
Many times, the result of tariffs is an increase in the price of consumer products as the tax gets passed along to the consumer. So even as the tariffs bring in more money for the U.S., the increased revenue could be offset by the growing inflation on consumer products.
So far, the implementation of the tariffs has been very hectic. Initially, tariffs on Mexico, Canada and China were set to go into effect on Feb. 4. But two days after announcing the tariffs, Trump announced that the tariffs on Mexico and Canada would be delayed for 30 days following agreements regarding border security and stemming the smuggling of fentanyl.
On Feb. 4, 10 percent tariffs were implemented on China, which Trump called “an opening salvo.” He then halted deliveries to the U.S. from China and Hong Kong and then a day later reversed that decision.
China has not negotiated with the U.S. at the same level as Canada and Mexico and has instead implemented its own tariffs on a variety of goods. Professor of political science Ka Zeng says, “Under the first Trump administration China was very much caught by surprise … but now several years into the trade war the Chinese have come around and realized that tariffs is going to be a normal part of the Trump administration policy.”
She goes on to say that China most likely will try to talk with the U.S., but says it will likely be difficult because “in part the Chinese don’t even know who to talk to in Washington these days.”
On March 4, Trump implemented an additional 10 percent tariff on China raising the tariffs on China to 20 percent. He also put in place 25 percent tariffs on Canada and Mexico. This second round of tariffs caused markets to spiral.
As a reaction Trump again granted reprieve for many of these tariffs implemented on Canada and Mexico.
Trump’s negotiations with Mexico and Canada and repeated removal of tariffs on them seem to point to the tariffs being a “bargaining tactic,” Razmi said. But his 25 percent tariffs on steel and aluminum are a clear attempt to revitalize the steel and aluminum industry in America.
He also added that some of the motive behind tariffs could be to move large amounts of labor away from countries such as China that the U.S. has strenuous trade relationships with.
Regarding the building of cellphones and where the individual parts are sourced from, Razmi says “[the manufacturing] may happen in 32 countries and one impact of the tariffs could be to move it from China, because China faces high tariffs to Vietnam, or maybe to India or other countries that faces lower tariffs.” He gives the example that if there were a pandemic in the future and we desperately needed supplies, it would be beneficial to have supply chains in countries that are friendlier to the U.S.
Professor Zeng says looking at the first years following initial tariffs put in place during Trump’s first term “showed that the Chinese companies have increasingly diversified their investments and really tried to go to countries that have good political relations with China.”
“The Trump administration does consider tariffs as a negotiation tactic to try to get more out of their trading partners,” she said, adding that “right now the Canadians and Mexicans are more worried about the tariffs than the Chinese,” due to their geographic proximity to the U.S.
Zeng remarks that negotiating with the Chinese would be inherently difficult due to large differences between the two countries, adding that she doesn’t believe “the tariffs are an effective instrument, vis-à-vis the Chinese.”
Under Trump’s first term and during former President Biden’s as well, she says the tariffs proved ineffective against China. “The U.S.-China trade deficit has continued to grow in recent years and China has made very little concessions in the areas in which the U.S. was most concerned about.”
It will take years to see the full ramifications of large-scale tariffs on the U.S.’s largest trading partners. Or they may entirely disappear within a year. But the impacts are already being felt in many places including the University of Massachusetts Amherst.
In January before any tariffs were put in place, one developer had to scale back the development of a five story building on the edge of UMass. They cited the high costs of steel which were feared to possibly rise more amid uncertainty about tariffs.
Under his first term Trump’s tariffs were felt the most by consumers. Additionally, the impact is felt less by middle and upper class Americans. Services, such as vacation resorts and concerts, are impacted far less than consumer goods by tariffs, meaning that those in the middle and upper class who spend a higher percentage of their income on services compared to the lower class feel the economic burden less.
Ethan Walz can be reached at [email protected].
