A former governor of the US Federal Reserve system says he believes US President-elect Donald Trump is using the tariffs as a “negotiating tactic”.
Randall Kroszne says Trump’s made clear that until he gets “satisfaction” from China and Mexico on issues of drugs and illegal migration, he’ll use tariffs “to try to make sure they do what he wants them to do”.
Kroszner also said that tariffs will impact the US economy far less than it would in other countries“Total imports in the US are only 15% of GDP, for many countries… it’s dramatically higher than that so it has a much, much bigger impact,” he said.
In Donald Trump’s first term in office there were two prevailing reasons for using tariffs.
With China in particular there was a big desire to cut the trade deficit – that’s the gap between the amount the US bought from China than sold.
That deficit meant that in 2018 – the year Trump first introduced tariffs – the US bought $418bn more goods from China than went the in the other direction.
Trump saw that as a drain on the US economy and eventually a deal for China to buy $200bn more goods was signed in January 2020. But China has struggled to live up to that commitment.
Although the deficit has see-sawed it is now lower and last year’s figure of $279bn was the lowest since 2010.
The other reason Trump gave for the use of tariffs in his first term was protecting American jobs. The new trade deal he agreed with Mexico and Canada may have helped but it’s more difficult to quantify the impact.
Neither deficits nor jobs were mentioned in his post about his plans for new tariffs in January.