Five lessons from Trump's tariff misadventure
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For two weeks, President Donald Trump held the economic equivalent of holding himself “hostage” by threatening 25% tariffs on Canada and Mexico and 10% tariffs on China. And then suddenly, most were gone in a blaze. The White House paused the two larger proposals on Canada and Mexico. The tariffs on China went into effect, but talks are apparently just over the horizon.
What did we learn?
What has gone into effect is small yet regressive… The full three-country tariff package Trump initially proposed would have cost the average American household $1,250 a year and added almost a percentage point to prices, according to analysis from the nonpartisan Budget Lab at Yale. Presumably, if negotiations with Canada and Mexico fail in a month, the full slate would be back on the table. But for now what actually went into effect was more modest. The 10% China tariffs on their own will cost $223 per household annually and will add between 0.1 to 0.2% to prices.
Not every household experiences the average hit the same. In the short-run, tariffs are regressive taxes, meaning they hurt working-class and middle-income families more than higher-income families, since in general the lower your income the greater the share of your income you consume and the larger portion of your budget you devote to imports. The consumer loss from the 10% China tariffs next year for households in the second decile by income are more than twice as much as for the top decile.
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