With Trump Threatening To Tighten The Trade Screws, Here’s A Look At What Tariffs Have Done So Far

President Donald Trump’s weekend tweets threatening additional tariffs brings new emphasis to the issue of how his administration’s imposition of these extra levies has impacted American finances. There are two main sources of additional U.S. tariff revenue: the tariffs levied on Chinese goods and those on steel and aluminum products from a variety of countries. According to the Trade Partnership, a Washington, D.C.–based consulting firm, the Chinese goods and steel and aluminum tariffs represent 11% of all U.S. imports.

Trump said the tariffs were “partially responsible for our great economic results.”

It’s true that tariff revenue has, in fact, soared. From about $3.5 billion per month, that revenue has spiked to as much as $6.6 billion. Even after a drop at the beginning of the year on weakened Chinese activity, tariff revenue stands at about $5 billion per month.

As the chart shows, however, that increased tariff revenue doesn’t really amount to much of anything in proportion to the federal budget deficit, which has generally gotten worse as tariff revenue started to increase. That’s because of the impact of the Tax Cuts and Jobs Act, which slashed corporate income-tax receipts, as well as growing spending, particularly on defense.

But what about the impact on the broader economy? In the last three quarters, where tariff revenue has shot higher, U.S. gross domestic product has grown by an average of 2.9%.

That’s good — very good, in fact — and offers evidence that tariffs on their own, at least set at existing levels, shouldn’t derail the U.S. economy.

But to say that they’ve helped is, to put it mildly, a stretch. The net contribution from trade over the last three quarters has, on average, been negative. Analysts at Oxford Economics say that U.S. economic performance has “been restrained, not facilitated, by tariffs,” noting that exports to China have fallen more sharply, down 21% in the first two months of the year, than exports from China have dropped, which was by 12%.

Recent business sentiment has soured, as well. The Institute for Supply Management’s manufacturing purchasing managers index fell in April to the lowest level since Trump was elected, and a services gauge also fell to multiyear lows. U.S. stocks DJIA, -0.25% SPX, -0.45% opened sharply lower on Monday, though they’ve enjoyed strong gains this year.

The best thing that can be said about tariffs is that they’ve helped bring China to the table. The U.S. and China agree that talks are heading toward the final stretch. What the Trump administration can argue is that a strong U.S. economy puts the White House in a good position to negotiate.

What they can’t, with any evidence, argue is that those tough tactics are worthwhile even in the absence of a trade deal.

Source:

​I hope you enjoyed today’s article – be sure to let me know how you liked it.