President Trump recently threatened to not only reinstate tariffs on steel and aluminum from Brazil and Argentina but impose more on such French goods as wine and cheese. The latter is in response to France’s president taxing “digital services,” the biggest of which, like Facebook, are American.
This weaponization of tariffs has been tried before, but generally to ill effect, says Robert Triest, professor and chair of Northeastern’s economics department. At this moment in time, Trump’s plan may be to intensify the trade war and to, as Triest says, “juice the economy by ending it,” a strategic move ahead of the 2020 election, and one that Triest says is dangerous for both the health of the economy and the welfare of the country.
While tariff revenue has increased with the ongoing trade war with China, it still constitutes a tiny fraction of overall revenue, at around four percent—“small potatoes,” as Triest says.
“Before the income tax was instituted around the time of World War I,” says Triest, “tariff revenue was usually more than 40% of total revenue.” But in recent years, that number has hovered at just around two.
That said, revenue isn’t the likely motivation for threatening tariffs. The more realistic reason? Political leverage.
“He does face reelection in less than a year,” Triest continues, “and if he’s looking for a policy lever he can pull to increase his reelection chances and kind of juice the economy, it could well be to end the trade war.”
An incumbent looking to emphasize his fiscal agility and commitment to his country would be well served by a suddenly rebounding economy and lower prices on foreign goods, particularly from countries that President Trump claims are manipulating their currency to the United States’ detriment.
Another perk of ending the trade war would be certain U.S. sectors having an easier time exporting their goods. This includes agriculture, which foreign powers have hit with their own tariffs in retaliation.
“He’s really the only one who wants this trade war, so he can call it off whenever he wants to,” Triest says, and doing so could renew hope in the Farm Belt, where Triest suspects Trump may be looking to increase support as he faces reelection.
However, says Triest, “he may actually go ahead and impose these tariffs if the trading partners don’t give into his demands—in the case of the French, that they remove the tax on digital services.” In other words, this may not be an empty threat, and Triest advises that businesses and trade partners take it seriously.
In fact, there’s no guarantee that such a plan will work: Threats could fail to drive foreign powers to concede. Trump may assume that if the United States removes tariffs, other countries will remove the tariffs they’ve put in place in retaliation; as Triest says, “he wants to declare that he’s won the trade war and then stop it.”
But what might happen instead is a mere continuation of the struggles domestic consumers and businesses are already facing. Triest likens this to a game of chicken, one between the president and his current trade adversaries.
“If they don’t move to the other side of the road,” says Triest, “he may just crash the car.”