President-elect Donald Trump won’t take office until Jan. 20 but his tariff threats are turning the world on its ear, from an implosion within Canada’s government to hand-wringing among German automakers who’ve been reeling from dwindling profits.
Democratic lawmakers at home, meanwhile, are pointing to estimates that tariffs will increase consumer prices, aggravating inflation that was top-of-mind for voters in November.
“The middle class is already getting clobbered by the cost of living in this country, and Trump’s only going to make it worse,” said Senate Finance Committee Chairman Ron Wyden, Oregon Democrat.
Mr. Trump is undeterred. He says tariffs are the best thing ever invented and will reorder the playing field in favor of American workers.
He’s pledged to slap a 25% levy on goods from Canada and Mexico if they fail to rein in illegal immigration and drug trafficking, and he’s threatened to impose tariffs of up to 60% on China.
Two of Canadian Prime Minister Justin Trudeau’s Cabinet ministers arrived Thursday in Palm Beach, Florida, for meetings at Mr. Trump’s Mar-a-Lago club to discuss border security and trade, and hoping to head off tariffs with promises to crack down on fentanyl trafficked into the U.S.
The European Union, meanwhile, is bracing for a blanket 10% tariffs on all goods imported into the U.S.
The situation could increase pain for German automakers such as BMW, Mercedes-Benz and Volkswagen, who are contending with sluggish demand in China and lower profits.
“Protectionist measures are not an effective way to protect domestic markets,” the German Association of the Automotive Industry told The Washington Times in a written statement. “Instead of isolating each other, we advocate a return to constructive discussions. Germany and Europe must resolutely commit to international cooperation that adheres to the rules of rule-based action worldwide.”
Tariffs are a form of tax or duty paid on imports. Mr. Trump says tariffs are a great way to force companies to return to America or keep their operations in the U.S., employ American workers and create revenue to fund domestic programs.
The U.S. relied on tariffs as a primary source of government revenue until the federal income tax was imposed in the early 20th century.
While tariffs hurt foreign countries by making their products more expensive and harder to sell in the U.S., foreign countries don’t pay the tariffs directly to the U.S. Treasury. Companies pay the levies and often pass at least some of the cost to consumers through higher prices.
The Congressional Budget Office recently estimated that a blanket 10% tariff on all imported goods plus an additional 50% tariff on Chinese goods would decrease deficits by $2.7 trillion over the 10-year budget window.
However, they would make “consumer goods and capital goods more expensive, thereby reducing the purchasing power of U.S. consumers and businesses,” the scorekeepers said.
“China, Mexico and Canada are not paying for these tariffs,” Rep. Don Beyer, Virginia Democrat, said at a recent hearing before the U.S. Congress Joint Economic Committee.
Mr. Beyer said the past election proved Americans are fed up with high prices. He said tariffs will serve as “inflation aggravators.”
The CBO said the scope of Mr. Trump’s plans, however, is so great that it is difficult to predict what will happen with certainty.
“The United States has implemented no increases in tariffs of this size in more than 50 years, so there is little relevant empirical evidence on their effects,” the scorekeepers said.
Polling shows a mixed picture. A recent CBS/YouGov survey found a slight majority of Americans favor imposing tariffs on imports, 52% to 48%. However, nearly six in 10 thought new tariffs would make prices higher. Only 18% thought they would lower prices and 23% predicted no change.
It’s unclear whether Mr. Trump will follow through on his threats or if he’s trying to compel policy outcomes before his inauguration.
German automakers, for instance, could duck Mr. Trump’s tariffs by making more automobiles in the U.S.
“I want German car companies to become American car companies. I want them to build their plants here,” Mr. Trump said at a campaign rally in Georgia.
BMW has a large plant in Spartanburg, South Carolina, and Volkswagen has operations in Chattanooga, Tennessee, so automakers might leverage those sites to avoid tariffs on vehicles coming into the U.S.
“The German manufacturers have some spare capacity in their U.S. manufacturing sites to restructure model production and ramp up local production, but it is limited,” said Rico Luman, a senior economist for transport, logistics and automotive at ING Research – Global Sectors.
The German Association of the Automotive Industry, known as VDA in its German abbreviation, said tariffs would be a “step backward” for global trade and job creation.
“In the end, tariffs lead to higher prices — meaning the products will become more expensive for U.S. consumers,” the association said. “Undoubtedly, the also-discussed introduction of U.S. tariffs on imports from China, Mexico and Canada would not be without negative consequences for the U.S. economy and the global trading system.”
Mr. Trump’s threat is already kicking up dust among U.S. neighbors.
Canada announced new security measures in response to Mr. Trump’s demands, including increased border surveillance and a strike force to target organized crime.
Still, Mr. Trump is relentlessly taunting Canada, saying it should become the 51st state if it can’t handle tariffs. The situation is destabilizing Mr. Trudeau’s grip on power.
Mr. Trudeau’s finance minister, Chrystia Freeland, abruptly resigned from the government this month, saying Mr. Trudeau tried to demote her to a different position and was relying on “political gimmicks” to deal with inflation instead of protecting reserves to deal with Mr. Trump’s tariff threats.
Jagmeet Singh, the leader of the New Democratic Party of Canada, said he will try to demolish Mr. Trudeau’s grip on power with a motion of no-confidence in the next House of Commons. He said there is too much at stake, including efforts to stand up to Mr. Trump’s tariffs.
“The Liberals don’t deserve another chance,” Mr. Singh wrote in an open letter on Dec. 20. “That’s why the NDP will vote to bring this government down.”
Mexican President Claudia Sheinbaum has received high marks since taking office in October. A survey by El Pais newspaper found 76% of the population approves of her management.
About a third, 34%, thinks she will do a better job than her predecessor, Andrés Manuel López Obrador, of dealing with Mr. Trump, and 47% say that she will do at least as well as the former Mexican leader.
Not everyone sees tariffs as a bad thing, notably because they are designed to protect U.S. industries from foreign competition. They say any inflationary effects on prices will be outweighed by benefits for domestic workers.
“Tariffs should be used wherever they can stimulate domestic production,” Jeff Ferry, chief economist at the Coalition for a Prosperous America, told congressional lawmakers.
President Biden is using tariffs to protect American industries against competition from China, including a 100% tariff on electric vehicles that effectively cuts the Asian superpower out of the U.S. EV market.
But there are institutional concerns about tariffs, no matter who is president. The Constitution grants Congress the power to set duties on other nations, though presidents have some latitude to impose tariffs in certain emergencies or on national security grounds.
Some analysts are worried that Mr. Trump will try to stretch the bounds of executive power in setting tariffs.
“All future presidents would face standing temptation to use tariffs in corrupt ways to reward supporters and cronies or to punish critics and business rivals,” said Ed Gresser, vice president and director for trade and global markets at the Progressive Policy Institute . “The Constitution is very clear. This is a congressional power.”
