It’s no secret that Donald Trump is a man of obsessions. Immigration, China, security… The former American president likes to tirelessly repeat the same words and invectives during virulent speeches. To convince his compatriots to bring him to the White House again, the billionaire plans to use, to excess, a double-edged instrument: customs duties.
A hobby that is not new. On September 2, 1987, the man who was then only a real estate developer simultaneously gave himself a full page in the New York Times, THE Boston Globe and the Washington Post, with a letter signed by his hand, entitled “There is nothing wrong with America’s foreign defense policy that a little backbone cannot cure.” The missive is addressed “to the American people” and begins with this lapidary observation: “For decades, Japan and other countries have taken advantage of the situation of the United States.” After a long argument, the author concludes: “It is time for us to end our vast deficits by making Japan and others who can afford it pay.” By that, understand: increase customs duties. A publicity stunt worth nearly $100,000 at the time.
Inconclusive results
Nearly forty years later, the Republican candidate’s doctrine has not changed. “Protectionism has been a constant for him since the 1980s as a privileged instrument of his geo-economic ideology, both mercantilist and isolationist. He thus embodies the antithesis of the American elites since the 1970s, whose approach consisted of opening the internal market to third countries, in order to attract them into the military-economic orbit of the United States and ensure their defense in exchange for using the dollar as a transaction and reserve currency,” explains Raphaël Gallardo, chief economist at asset manager Carmignac.
In March 2018, Trump had already decided to carry to 25% taxes on steel imports and 10% on aluminum. A few weeks later, the Republican leader’s wrath fell on Beijing, with the announcement of a 25% tax on $50 billion of Chinese imports, marking the beginning of the trade war. In retaliation, China targeted American cereals. As a result, the federal government was forced to compensate its farmers to the tune of several tens of billions of dollars. As for Chinese goods, a good part of their assembly – or even their production – was relocated to Vietnam to circumvent the restrictions.
Despite these measures that are detrimental to the American economy, Donald Trump plans to go even further if he is re-elected in November 2024: all imported products could be hit with 10% customs duties, compared to an average of 3.3% today. For those coming from China, the tax would even climb to 60%. The goal? To finance the tax cuts that the White House candidate intends to renew, or even expand. A simple back-of-the-envelope calculation undermines this reasoning. According to the think tank Tax Policy Center, a 10% increase in customs duties would generate $2.8 trillion in revenue over ten years. If the tax cuts enacted under Donald Trump’s first presidency were extended, the cost to the federal government would amount to $4.5 trillion over the same period, not including the new cuts sought by the Republican, according to data from the Congressional Budget Office, a US federal agency.
Global trade stability at risk
Donald Trump is convinced that this severe tightening will reduce the US trade deficit, while reindustrializing the country. Here again, the facts are stubborn. “We know that this will have no impact because an external deficit means above all that the country spends too much and consumes too much,” assures Antoine Bouët, director of the Center for Prospective Studies and International Information (Cepii). As for the hope of reindustrialization, it is belied by the figures. “We observed that the increase in taxes in 2018 did not massively create jobs in the steel, household appliances, automobile, etc. industries. On the other hand, it increased the price of steel or aluminum for customers. Those arriving from China and Europe are more expensive because of customs duties. But at the same time, American steel is also becoming more expensive, due to the market power given to American manufacturers,” says Lionel Fontagné, professor at the Paris School of Economics. “Donald Trump also sees customs duties as a powerful negotiating instrument that gives him flexibility on the diplomatic level,” adds Florence Pisani, head of economic research at Candriam. This was particularly the case when he put pressure on Mexico to drastically reduce the flow of migrants to the United States.
If the American billionaire keeps his word, the consequences for the economy could be considerable. Cepii experts have calculated that the United States would lose between 1.3 and 2.3% of GDP. Inflation, which the American Federal Reserve has been struggling to combat for over two years, would start to rise again. “It weighs in particular on the most disadvantaged households who depend much more on imported goods,” recalls Florence Pisani. Trump’s reasoning does not hold water, adds Lionel Fontagné: “He thinks that the United States is such a large market that China will lower the price of its products to access it. It works in theory, but not in practice. During the recent trade war, Chinese exporters passed customs duties into prices.” And some even took advantage of it to increase their margins. Above all, the generalization of a 10% tax to all countries without distinction would be an upheaval for international trade. “And yet it has played an important role in maintaining universal peace for decades. The geopolitical repercussions could be major,” fears Pol Antràs, professor of economics at Harvard, who anticipates a 5% fall in global GDP if the Republican’s program is implemented.
Robert Lighthizer, the man in the shadows
Donald Trump owes much of this aggressive policy to his shadow economic advisor, Robert Lighthizer, who was the US Trade Representative from 2017 to 2021. “He has a huge influence on Trump. He has developed an apocalyptic vision of the American economy, believing that the responsibility for its decline lies with foreign practices such as dumping,” explains Antoine Bouët. “Countries are said to be seeking to oust American companies by charging low prices thanks to much lower production costs, while not respecting environmental clauses.”
Lighthizer had already been at the helm of tariffs on Japanese semiconductors under Reagan. “He’s skeptical about the benefits of global trade. He’s an old-school protectionist and a very experienced trade negotiator,” said Robert Gulotty, a professor of international trade at the University of Chicago.
Now, Kamala Harris’ opponent hopes to capitalize on her promises of new import taxes, ignoring economic theory. During the debate on September 10, he took the American vice president by surprise by recalling that Joe Biden had not reversed his measures. “His protectionist speech allowed him to win the 2016 election by uniting around him all those forgotten by globalization, of whom he was the first spokesperson,” notes Raphaël Gallardo. Same player again.