Trump Wants to Make America Pay Again

What’s fascinating about former U.S. President Donald Trump’s return to the White House is that he is both replicating former President Grover Cleveland’s rare feat of two nonconsecutive terms and is doing so on a tariff policy that would make Cleveland’s final successor, William McKinley, blush. The world may still be getting its bearings after Trump’s landslide victory, but historians of the 19th century are in fine fettle.

Trump, who took tariffs to new depths in his first term, has promised to make them the centerpiece of his second-term economic agenda—alongside tax cuts, a bigger deficit, possible cuts to the safety net, and a reversal of everything outgoing President Joe Biden has done.

The questions about Trump’s tariff plans boil down to: How big, how soon, how, why, and what happens next?

The “how big” is tricky. Trump talked about a 20 percent tariff on all trading partners and 60 percent on China. He also mentioned tariffs as high as 200 percent, and whether that’s for individual firms (such as John Deere’s foreign imports) or countries that cross him, who knows? Economic modelers do not yet have a way to peer into Trump’s mind.

The “how soon” is also hard to answer, because that depends on the why and how. In his first term, Trump was able to levy tariffs—to be clear, those are effectively taxes on imports paid by U.S. consumers and businesses—on everything from Chinese appliances to German steel. There were, and are, statutory means to do so, notably Section 301 of U.S. trade law that allows for tariffs on countries that compete unfairly, as China has manifestly done since it joined the World Trade Organization a quarter century ago. Imports assessed by the U.S. government to undermine national security, such as Turkish rebar used to hold up buildings, can be hit with tariffs under Section 201 of the 1974 National Trade Act.

Not everyone believes that the White House can hijack trade policy, since trade is technically still in the purview of Congress. But there is a lot of leeway for presidential action under numerated sections of old trade policy and the devolved authority that comes from having the courts side with the executive branch. He could do it all again or face lengthy fights in the courts, in which case it would be a while before his tariffs hit full swing. Nobody knows.

The “why” remains puzzling. Trump himself has mooted tariffs as a replacement for income taxes—an homage to McKinley. His supporters, on the other hand, say the proposed tariffs are only negotiating leverage to get trade partners to play ball. Play ball how? Trump’s “greatest deal ever” with China resulted in few U.S. exports and zero change in China’s manipulation of loans, laws, and subsidies to finance its export workshop to the world. U.S. tariff rates are now higher than those of most trading partners. If the United States has a gaping trade deficit—which it does, and it only grew larger under Trump—and if that deficit mattered at all, how would strong-arming trading partners redress that? Nobody knows.

Answering what happens next is perhaps easier: a trade war. Europe has already manned the ramparts; those poor souls in France who ride Harleys and drink Jim Beam will rue the day. China will let the yuan slide until its amphibious ships are ready to restore order. Emerging markets are buying sand for sandbags, only it has all gotten pricier overnight.

Europe, in the form of both European Commission President Ursula von der Leyen and bigwigs such as French President Emmanuel Macron, has already tendered an olive branch, fearing what it knows is in store.