Shawn Griffiths
April 2 marks President Donald Trump’s ‘Liberation Day,’ which could usher in the most aggressive tariffs in modern US history or be completely blown out of proportion.
The full details are unknown, but the president is expected to address the press Wednesday afternoon in the Rose Garden of the White House. What is known is that the White House says the new tariffs will go into effect “immediately.”
What Is Liberation Day?
There are still many question marks that remain over Trump’s “Liberation Day,” including whether or not the president’s plan includes a universal tariff on all imported goods or will target only some countries.
Also added to the unknown variables is how countries will retaliate. In other words, Americans will have to wait and see.
The Trump administration asserts that these tariffs – whatever they end up looking like – are necessary to counter unfair trade practices and protect American jobs.
“These countries have been ripping off our country for far too long, and they’ve made their disdain for the American worker quite clear,” said White House Press Secretary Karoline Leavitt on Monday.
Leavitt added:
“This makes it virtually impossible for American products to be imported into these markets and it has put a lot of Americans out of business and out of work over the past several decades. So it’s time for reciprocity.”
One Moody simulation suggests a 20% universal tariff would have the opposite effect on American jobs, especially since such a move would inevitably be met with retaliatory trade measures from other countries, costing millions of jobs and dropping the nation’s GDP to 1.7%.
It should be noted that this is the worst-case scenario, something the media likes to focus on even as Moody analysts predict Trump will not take such extreme action -- though uncertainty always begets unease.
Voters will hear a lot of talk on trade and the consequences of tariffs. Here is what history says about the promises the Trump administration is making ahead of the “Liberation Day” announcement.
First, What Is a Tariff?
Tariffs are taxes or duties imposed by a government on imported goods and services. They are primarily used to regulate trade, protect domestic industries, and generate government revenue – and have been used for these purposes by presidents of both major political parties.
There isn’t just one type of tariff. For example, there is an Ad Valorem Tariff, which is the percentage of the value of the imported good (e.g., a 10% tariff on a $1,000 item means an extra $100 tax).
There is also a Specific Tariff, which is a fixed amount charged per unit of the good (e.g., $5 per imported barrel of oil). And finally, a Compound Tariff, which is a combination of the previous two types.
Can Tariffs Save and Create Jobs Here at Home?
The short answer is yes. There are historical instances where tariffs have led to an increase in domestic jobs to some degree. The “but” is there are multiple variables at play, including the industry targeted, the broader economic environment, and how other nations respond.
In the end, tariffs tend to have a mixed impact on job creation. Some industries might see job growth while others see losses.
In 2009, for example, the Obama administration imposed a 35% tariff on Chinese tires. This was a dramatic increase from the normal duty rate of 4%. As a result, the US saw an increase in domestic tire manufacturing and some jobs were saved.
“The tariff saved 1,200 U.S. tire jobs, which had been in sharp decline. And U.S. tire production rose after a major decline,” CNN reported in 2017. However, the same report cited a study from the Peterson Institute of International Economics that highlighted the negative impacts.
The study found that consumer prices increased not only for Chinese-made tires but US-made tires as well (domestic companies responded to diminished competition), which cost Americans an extra $1.1 billion and resulted in the loss of nearly 4,000 retail jobs.
With Tariffs, There Always Tends to Be a Trade-Off
The Trump administration imposed tariffs on steel and aluminum imports in 2018. Just like with tire manufacturing in 2009, this led to a short-term boost in domestic metal production. Companies like US Steel reopened factories and rehired people.
The price of steel and aluminum eventually dropped. However, the expansion of domestic metal production took time and did not happen quick enough to make up for the immediate rise in prices following the implementation of the tariffs.
Prices didn’t decrease faster than they increased, meaning industries that relied on steel – like the automotive industry – faced higher prices and laid off workers. This ended up making any job growth seen in metal manufacturing short-lived.
Reuters reports:
“A 2019 Federal Reserve study estimated that higher input costs from the 2018 tariffs reduced manufacturing jobs, relative to what it would have been without tariffs, and raised production costs for metal-based goods.”
Understanding the trade-off of job gains and losses under tariffs that target specific goods, one can see how a universal tariff would be the worst-case scenario. If everyone is hit by higher prices, it can force broad layoffs.
With Tariffs Come Retaliation
Then, there is the added question: How will targeted countries respond? Retaliation is inevitable when it comes to trade policy. No major trading country accepts tariffs aimed at their goods without imposing tariffs of their own.
A recent example of this is when Canada responded to Trump’s tariffs with a 25% surcharge on electricity. But a notable historical example of the potential consequences of retaliation is the Smoot-Hawley Tariff Act of 1930.
The act imposed a massive tariff on about 40% of goods that entered into the United States. The tax on these imported goods went as high as 59%.
The goal was to protect American farmers and industries from foreign competition. And at first, it protected some American jobs – until it sparked an international trade war that made the Great Depression worse.
Anyone who remembers the film Ferris Bueller’s Day Off may remember Ben Stein’s character talking about the Smoot-Hawley Tariff Act to a class of bored students.
The American people made the 2024 election a referendum about the economy. Voters, especially those looking for relief, often cast their ballots based on the status of their wallets. The question is: Will US elected officials do right by them?
Because at the end of the day, trade wars never do right by consumers.