Back Off Those Tariffs, Mr. President: Tax Foundation

While the stock market is swinging with the Dow’s drop of 600 points earlier this week, then rallying 300 points today when hearing tariffs on automobiles may be delayed, what is the long-term effect of these gyrations on the U.S. economy/?

The Tax Foundation, a Washington-based policy research group that supports a simpler tax code, determined that all tariffs announced this far, fully imposed, would hurt the U.S. GDP by .75% ($188  billion), offsetting half of the long-run impact of the sweeping tax overhaul passed in 2017.

Further, according to the group’s latest report, if all tariffs are enacted, it would mean a loss of a half million jobs. President Donald Trump has announced he will raise tariffs to 25% from 10% on $200 billion worth of imports from China and may raise the tariffs to 25% on $325 billion more in imports from China.

The stock market was cheered up Wednesday with a potential delay of auto tariffs, which alone could hurt GDP by .45%, according to the Tax Foundation, as well as result in 0.29% lower wages and 347,988 fewer full-time jobs.

The foundation states that “the Trump administration has so far imposed $72 billion worth of new taxes on Americans by levying tariffs on thousands of products.” Trump continues to say the U.S. is receiving money from those tariffs and has an additional $15 billion bailout for farmers (on top of the $12 billion he ordered in 2018).

However, the Tax Foundation states in its report, “Historical evidence shows that tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.” Further, the U.S. dollar may appreciate.

Products currently affected by the tariffs on China include washing machines, steel and aluminum, and solar panels. The foundation writes that “In March 2018, President Trump announced the administration would impose a 25% tariff on imported steel and a 10% tariff on imported aluminum. If 2018 imports equal 2017 levels these tariffs could cost U.S. firms nearly $9 billion.

“For example, the value of imported steel totaled just over $29 billion in 2017. If the 25% tariff were levied on the same level of imported steel, the tax would total roughly $7.3 billion. Similarly, if a 10% tariff were applied to the $16.8 billion worth of aluminum imported in 2017, the tax would total nearly $1.7 billion.”

Bloomberg reported Wednesday that the tariffs put Apple in a pickle, leaving it with the choice of increasing consumer costs or eating them and taking a hit on profits.

Tariffs aren’t only being applied to China. The United States has imposed them on other countries and products at varying rates. These include Mexico, which has responded with tariffs on products such as cheese, Tennessee whiskey and steel, and the European Union, which plans to place a 25% tariff on 200 American products, such as denim, bourbon, motorcycles and peanut butter.

Other countries planning retaliatory tariffs include India, Turkey and Russia.

The Foundation concludes that “if additional tariffs and in-kind retaliatory actions continue to be taken, the harm caused to U.S. businesses and consumers would increase. The Trump administration would do well to not follow a path of imposing tariffs that could dampen the U.S. economic outlook.”

— Related on ThinkAdvisor:

• Grundluch Warns of ‘Cocktail of Economic Risk’
• Fund Managers Are Worried About China: Merrill Survey