Trump’s tariff pause only delays inevitable disaster

President Trump has suspended many of his most-threatened tariffs for 90 days. Although the stock market initially regained some ground on this news, the S&P 500 still stands about 5 percent below where it was on “Liberation Day.”

Trump’s 10 percent global tariffs and special 25 percent tariffs on steel, aluminum and automobiles are still in place, and he just raised China’s tariff to 145 percent. When he took office in January, the average U.S. tariff rate was 2.2 percent. With all the new tariffs, it is now above 24 percent, more than 10 times higher. 

Trump’s tariffs represent a clumsy attempt to replace a global trading system based on stability and deliberation with his unilateral rage- and power-driven trade war. 

His nonsensical tariff formula was so widely ridiculed that no one in his administration is now willing to admit their part in constructing it. Foreign trading partners see the calculations as a blatant exaggeration of their actual tariffs, designed to allow Trump to extract more trade and non-trade concessions from them. 

Trump’s foolhardy gamble to remake the world economy has also led to turmoil in the bond market. Trump may believe he can create a globalization-free market for U.S. manufacturing, but he cannot do the same with U.S. financial markets.  

The reliability of U.S. Treasury bonds, for decades the source of international trust in the U.S. economy, is now being questioned, weakening the dollar and potentially raising interest rates. How stable and reliable can the U.S. economy be if the president is given absolute control of tariff policy, treats all foreign countries as enemies and unilaterally starts a trade war? 

Trump now claims he will personally negotiate deals with 75 countries over the next 90 days. But in the absence of their abject submission to his unpredictable demands, he will resort, inevitably, to more tariff escalation. He presents himself as tough on China in his tariff escalation, but for U.S. consumers, this means that they now have to pay 145 percent more for Chinese imports.  

China is the largest exporter of consumer electronics in the world and makes 70 percent of the world’s toys. In December, watch for the price of many holiday gifts to rise by 145 percent in the U.S.

Despite the pause, Trump has not given up on his grandiose plan for a U.S. manufacturing renaissance through permanent tariffs and a re-shoring of all auto, steel and aluminum production, which he says may take as long as “a year or two.”

How can this fantastic dream be achieved?  Expanding U.S. industrial capacity will take much longer than two years and will cost perhaps trillions of dollars in risky investments. There is no U.S. workforce available for labor-intensive clothing, footwear and assembly operations. 

U.S. innovation will be weakened by reduced competition. Both domestic and foreign investors will be scared away from the U.S. market by the uncertainty of Trump’s erratic policies.   

Trump’s obsession with tariffs appears increasingly to resemble a patriarch addicted to gambling, with his family watching helplessly as he continues to squander its savings, home and fortune on long-shot bets at the poker table, despite the losses he insists will pay off someday. Trump is making bets on U.S. families’ income, purchasing power and retirement savings, and on U.S. businesses that may go bankrupt because of the tariffs. 

Trump also continues to insist that tariffs will be paid by foreign exporters, even suggesting that he can eliminate U.S. income taxes as a result. Anyone who doubts that tariffs are paid by U.S. importers and passed along to U.S. consumers can check the tariff receipts, which are paid by U.S. customs brokers hired by U.S. importers, who mark the price up to cover the cost. 

This system also applies to individuals bringing dutiable goods through U.S. customs checkpoints. Don’t argue that the foreign shop where you bought the item will pay the tariff, or send the bill back there for reimbursement. You’re on the hook for it. 

Trump covets the tariff revenue and disguises that it taxes U.S. consumers in secret. Usually, a big tax increase like this would require congressional debate and legislation, which Trump is trying to avoid, along with negative public reaction to increased taxes.  

This is also why Trump includes tariffs on coffee and bananas, along with many other items that previously entered the U.S. duty-free. He wants the extra tariff tax revenue at the consumer’s expense.

Trump claims that tariffs never increase the price of American-made goods and openly declares he “doesn’t care” if tariffs increase import prices, since the nation’s consumers will switch to U.S.-made substitutes. But tariffs reduce competition and shift demand to similar domestic goods, whose producers then raise their prices. Consumers have to pay more either way. 

Is there a way out of this catastrophe? Trump could settle the “reciprocity” crisis by accepting zero-for-zero tariffs among all trading partners or use U.S. trade laws to address individual countries’ unfair trade practices.

Another way to avoid disaster is for Congress to introduce a bill reclaiming control of tariffs, as stipulated in Article One of the Constitution. 

Congress delegated emergency powers to the president in the International Emergency Economic Powers Act of 1977. Yet this provision requires prior consultation with Congress, and already, private U.S. companies have sued to have Trump’s tariffs removed for lack of compliance with it. 

In the meantime, the damage of Trump’s tariff folly will come right out of the hides of U.S. consumers and businesses. Contrary to Trump’s earlier happy talk that the tariffs would be “fun” to watch and the trade war “easy to win,” massive price increases threaten consumers on everything from groceries and autos to new homes. 

And don’t forget the prospect of skyrocketing holiday gift prices. 

Kent Jones is an emeritus professor of economics at Babson College.