FACT: Tariffs are taxes paid by Americans.

THE NUMBERS: U.S. GDP growth –

* International Monetary Fund projection, April 2025
** 2021-2024 growth rates from BEA

WHAT THEY MEAN: 

Mr. Trump’s April 2 tariff decree, claiming a “national emergency” related to trade balances, imposed (a) a 10% tariff on almost all the coffee, TV sets, automobile parts, shirts, and other things American buy from abroad, and (b) higher rates up to 50% on things from 57 specific trading partners, from Bosnia and Jordan to the European Union.  Following a bond-market rout on April 9, the administration “suspended” these latter rates for 90 days — i.e., today — in the hopes of making “deals”. Monday’s extension of this deadline to August 1st for at least some countries comes with renewed threats, similar though not always identical to those of April 2. (They range from 25% to 40% this time, and cover 14 countries: Kazakhstan, Cambodia, Tunisia, South Africa, Japan, Korea, Indonesia, Bangladesh, Thailand, Serbia, Bosnia, etc.).  These may all be struck down in a few weeks, as on July 31 the Court of Appeals will hear arguments on the May 28 lower-court opinion declaring the entire April 2 decree, and therefore anything using it as a base, illegal. If that doesn’t happen, here’s a look at the likely impacts, through the lens of a “deal”  the administration announced (perhaps prematurely) last Thursday:

Big picture first: Last April, the International Monetary Fund cut its U.S. growth estimate by nearly a point, from a 2.7% guess in mid-January to 1.8%. (In dollars, this means about $200 billion less U.S. output, with an original $730 billion in growth falling to $535 billion.) Excluding the -2.2% contraction in the pandemic year 2020 as an anomaly, a 1.8% growth year would be the U.S.’s lowest in 15 years. Or, more recently, it’s a point below the 2022-2024 average.  The Commerce Department’s Bureau of Economic Analysis, which does the U.S. government’s GDP-estimating, reports a -0.5% contraction in this year’s first quarter, so the IMF seems on track or even a bit optimistic.

Trade “deals” and anti-growth: The administration’s description, posted last Thursday, of a ‘trade deal’ with Vietnam — as of this morning, the only one reported so far among countries targeted in the April 2 decree — helps explain the impact of trade policy on these forecasts:

“Vietnam will pay the United States a 20% tariff on any and all goods sent into our territory, and a 40% tariff on any transshipping. In return, Vietnam will do something that they have never done before, give the United States of America total access to their markets for trade. In other words, they will ‘open their markets to the United States,’ meaning that, we will be able to sell our product into Vietnam at zero tariff.”

The first two sentences aren’t true. “Vietnam” won’t pay anything, and its government made much larger “access” offers to join the Trans-Pacific Partnership in the 2010s.  This “deal’s” nature and lifespan (even if the Court of Appeals doesn’t scrap it next month) are likewise uncertain, as neither the White House nor the U.S. Trade Representative Office has posted any actual text. But assuming that at least the “20%” (cut back from a 48% April 2 rate) and “40%” figures are correct, and that it isn’t swiftly terminated, here’s the likely impact of “deals” of this sort.

1. Vietnam won’t pay any of this. Americans buy about $130 billion worth of goods from Vietnam each year, mainly consumer goods found in retail stores and groceries: TV sets, laptops, and smartphones; shoes and clothes; furniture; seafood, coffee, canned tropical vegetables, and so on. Imposing a 20% tariff on them does not mean that “Vietnam” as a country, or the Vietnamese government, or Vietnam-based companies, will pay anything.  The ones who pay are the buyers — American retailers, food wholesalers, grocery stores, and so on  — who will write checks to CBP for 20% of their cargoes’ value when furniture and clothes dock at Long Beach, or laptops and coffee arrive on the incoming tide at New Orleans.

2. You will pay. The buyers’ tariff payment, in turn, is included in the bill you pay in the store. This is because these buyers add it to the bills they’ve paid to their Vietnamese supplier and to the shipping company carrying across the Pacific to the United States. The result is the “landed cost” from which they mark up to cover costs — wages, building rent, transport, maintenance, marketing, etc. — and leave a profit margin. If the product doesn’t sell, the store takes the loss; if you buy it, you cover their tariff cost. Using the hypothetical example of a container carrying 1,000 Vietnamese-made wooden chairs valued at $100 each, here’s the arithmetic:

Notes: The average import value of a wooden Vietnamese chair last year was $106; the table uses $100 for simplicity.  The $5000 payment to the shipper is based on typical current container rates for a Ho Chi Minh City-to-Los Angeles transit. The markup is purely hypothetical; real-world markups vary by company and product. State sales taxes range from 0% to 7.25%, the 5% is a rough average.

So the administration’s “deal” here is for you to pay $42 more for a chair.  Fundamentally, you’re out $42, the federal government gets $20 in tariff money, and your state government gets $2 in sales tax.  The remaining $20 mostly evaporates as “deadweight loss.” Looking back to the IMF’s forecasts, and scaling this up for U.S. trade in general:

Family price impacts: Spread across the country and all consumer goods, retailers will lose some business as they try to sell higher-priced chairs; buyers such as yourself will pay more; and the country will lose some GDP as more twenties vanish around the country.

Producer impacts: Where most Vietnamese imports are “consumer” goods like the chairs, shoes, and TV sets, Canada’s product mix is heavy on energy, fertilizer, and natural resources. The EU’s tilts toward medicines, cars, chemicals, and industrial inputs.  Retailers, groceries, and restaurants do buy a lot of Canadian and European goods, and with higher tariffs, they’d pay more and charge more. But the impact of tariffs on Canadian and European goods — that’s fully a third of all U.S. goods imports last year — will fall relatively harder on American manufacturers, farmers, hospitals, and building contractors. Facing higher costs, these businesses would lose some competitiveness vis-à-vis imports and especially as exporters. Their higher production costs, meanwhile, would raise inflationary pressure on the “producer price” side and give Federal Reserve economists some extra reason to avoid interest rate cuts.

So: as the IMF’s forecasts and the BEA’s reporting to date both suggest, the likely effect of “deals” like this one will be somewhat lower living standards and a drop in growth rates.

FURTHER READING

PPI’s four principles for response to tariffs and economic isolationism:

• Defend the Constitution and oppose rule by decree;
• Connect tariff policy to growth, work, prices and family budgets, and living standards;
• Stand by America’s neighbors and allies;
• Offer a positive alternative.

PPI’s Ed Gresser testifies on tariffs at the Joint Economic Committee, December 2024; PDF version here.

Macro background:

The IMF’s April World Economic Outlook update.

The Bureau of Economic Analysis’ most recent GDP report shows a drop of 0.5% in January-March 2025.

Legal outlook:

The White House’s April 2 tariff decree.

The Court of International Trade’s unanimous May 28 opinion ruling it unconstitutional.

… our look at the C.I.T. decision.

Next up, with oral argument coming July 31, the Court of Appeals brief from the Liberty Justice Center.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

Read the full email and sign up for the Trade Fact of the Week.

FACT: The U.S. needs 8,000 tons of cobalt a year, and produces 300 tons.

THE NUMBERS: Cobalt reserves known as of 2024, worldwide* –

* U.S. Geological Survey, Mineral Commodity Surveys 2025

WHAT THEY MEAN: 

Last March, Marco Rubio, the Secretary of State, announced cancellation of 5,200 U.S. Agency for International Development contracts — all but about 1000 of them – claiming that the projects they underwrote “did not serve, (and in some cases even harmed), the core national interests of the United States.” A PPI guest post today by former USAID economist Kevin Ward looks at one of these projects: an effort to secure American manufacturers’ supply of the “critical mineral” cobalt through a transport project in the Democratic Republic of Congo. Ward’s story illustrates the work USAID professionals actually do — often technical, designed for shared benefit, sometimes entailing personal risk — and also casts an ironic light on Mr. Rubio’s line about national interests and things that don’t serve, or sometimes even harm, them:

As a point of departure, the experts at the U.S. Geological Survey consider a mineral “critical” when it is (a) “essential to the U.S. economy and national security,” and (b) “ha[s] supply chains that are vulnerable to disruption.” Reliable access for American industry to these minerals is thus widely thought (including by the Trump administration) a “core national interest.” USGS’ official list has 50 of them, from arsenic and antimony to zinc and zirconium, complete with their uses, sources, production levels, trade flows, and availability in the U.S..

Cobalt, a bluish metal selling for $33,335 per ton on the London Metal Exchange today, is No. 10 on the list. Used for centuries for stained glass and deep-blue paints, it meets USGS’s two “critical” tests because it is (a) necessary for the heat- and wear-resistant ferroalloys used for aircraft engines, and the lithium-ion batteries that run smartphones and electric vehicles, and (b) in short supply. American factories need about 8,000 tons of cobalt each year, but the lone U.S. source is the Eagle Mine in Michigan, a mainly copper-and-nickel operation which also produces about 300 tons of cobalt, and is set to close in four years.

So most cobalt must come from somewhere else, and one country in particular has a lot. The Democratic Republic of Congo (in central Africa along the eponymous river, formerly Zaire, home to 84 million people) has 55% of the world’s 11 million tons of cobalt reserves, and produces 75% of the world’s 290,000 tons of annual mining output. But as Ward explains, geopolitical uncertainty makes this source “vulnerable to disruption”:

“Though the DRC is the world’s largest cobalt producer and the second largest copper producer, its mineral supply chains are tightly controlled by China: Chinese companies own the country’s largest mines, its local processing operations, and the railroad that takes its minerals to China for additional processing.”

This is where USAID came in. The contract Ward was working on last winter was clearing the way for American businesses to get access without relying on Chinese middlemen:

“To counteract China, USAID supported the growth of a copper processing industry in the DRC and various projects along the Lobito Corridor: an infrastructure initiative connecting the Copperbelt to Angola’s Port of Lobito, increasing access to the U.S. market. As part of that effort, I kicked off a new USAID activity in January of 2025 to help refurbish the railroad from the DRC’s Copperbelt to the Angolan border — a key segment of the Lobito Corridor.”

In sum, a modest U.S. investment would restore a dilapidated railroad outside Chinese control, running from mining areas in the interior to the coast through Angola. Railcars carrying cobalt along it could sell their cargo to American manufacturers. This was one part of a five-year, $235 million program, with additional financial backing from a third U.S. agency (the Development Finance Corporation) and several dozen USAID technical people on the ground. Not a luxury posting for them, to put it mildly — see the State Department’s “Level 4, Do Not Travel” advisory for civilians and CDC’s health warnings about endemic cholera, meningitis, etc. But the job is part of a mission to serve a widely agreed U.S. interest in reducing, or perhaps eliminating, a risk of supply shock for thousands of large American manufacturers, and is the sort of work USAID people regularly do. Ward laconically explains the project’s current status:

“[W]ork came to an abrupt stop on January 20, 2025.”

So: By canceling this particular project, the administration more or less concedes a Chinese monopoly on the largest supply of a critical mineral. In a few years, even designing such projects may be harder: per its 2026 budgeting, the administration hopes to cut USGS by 40%, so by 2027 the government may lack experts on critical mineral reserves and production. The administration is, though, offering a baffling substitute: Mr. Lutnick’s Commerce Department is proposing “national security” tariffs on critical minerals — that is, taxes of 25% or so on essential things not in sufficient supply at home. In practice, this is a chance for American auto, aircraft, and battery companies to pay $41,670 per ton of cobalt, rather than the $33,335 their overseas competitors pay.

Lots more stories like this among the other 5,199 cancellations, of course. So, in a sense, Mr. Rubio is right to say that some people are going around doing things that “do not serve (or even harm) the core national interests” of the United States. He won’t have to look hard to find them.

FURTHER READING

PPI’s four principles for response to tariffs and economic isolationism:

• Defend the Constitution and oppose rule by decree;
• Connect tariff policy to growth, work, prices and family budgets, and living standards;
• Stand by America’s neighbors and allies;
• Offer a positive alternative.

Kevin Ward on USAID’s Lobito Corridor railway project.

PPI’s February defense of the American foreign assistance tradition —  ideals, interests, and aid — from Herbert Hoover’s World War I famine relief program through JFK’s launch of USAID to PEPFAR‘s HIV/AIDS prevention and treatment, the Millennium Challenge Corporation, and Feed the Future in the 21st century.

New Ukraine Project Director Tamar Jacoby on USAID in Ukraine.

… & Mr. Rubio in March.

Cobalt and critical minerals:

The U.S. Geological Survey explains the “critical minerals” concept and lists the 50 critical minerals.

… and summarizes the cobalt-mining world. The mine outputs in 2024:

Cobalt prices at the London Metal Exchange.

… the Eagle Mine in Michigan’s Upper Peninsula is the sole U.S. cobalt producer.

… & the Commerce Department solicits ideas on how American firms can pay more.

The Royal Society of Chemistry’s interactive Periodic Table of the Elements has physical properties and uses for all 118 elements, with cobalt at atomic number 27.

Democratic Republic of Congo:

The Development Finance Corporation announces Lobito Corridor plans, December 2024.

The Democratic Republic of Congo Embassy.

The State Department’s travel advisory has some blunt advice for civilians –  “Do not travel to the Democratic Republic of Congo due to Armed Conflict, Crime, Civil Unrest, Kidnapping, and Terrorism” – and the CDC has guidance on avoiding cholera, meningitis, schistosomiasis, malaria, and other ailments.

The Commerce Department’s guide for U.S. businesses in the DRC is a little more upbeat: “opportunities for firms with a high tolerance for risk and familiarity operating in complex or fragile environments”.

The Labor Department’s International Labor Affairs Bureau has been supporting work to reduce and eliminate child labor in DRC mining, including for cobalt specifically. Perhaps not much longer: as with USGS, the administration hopes to cut ILAB by about 40% this year, and confine its work mostly to issues linked in some way to “trade enforcement”.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

Read the full email and sign up for the Trade Fact of the Week.