WHAT THEY MEAN:
From Through the Looking-Glass, Chapter 5:
“Alice laughed. ‘There’s no use trying,’ she said. ‘One can’t believe impossible things.’
“‘I daresay you haven’t had much practice,’ said the Queen. ‘When I was your age, I always did it for half an hour a day.
Why, sometimes I’ve believed as many as six impossible things before breakfast.’”
In the Queen’s spirit, the Trump campaign’s 10-chapter, 5,398-word, platform starts with a pledge to “defeat inflation and quickly bring down all prices” in Chapter 1, and then — four notches down in its own Chapter 5 — says this on trade policy:
“Trade deficit in goods has grown to over $1 Trillion Dollars a year. Republicans will support baseline Tariffs on Foreign-made goods, pass the Trump Reciprocal Trade Act, and respond to unfair Trading practices. … By protecting American Workers from unfair Foreign Competition and unleashing American Energy, Republicans will restore American Manufacturing, creating Jobs, Wealth, and Investment.”
The weird grammar and “Mad Hatter” orthography makes the passage a bit hard to read. Converted from argot to standard English, it promises a lower trade deficit and a larger manufacturing sector, plus a couple of policies that ostensibly will get these things. One, the cryptic allusion to a “Reciprocal Trade Act” can be ignored; it’s a concept pitched by Peter Navarro in the Heritage Foundation’s Project 2025 book, and unworkable in practice. (Precis below for those curious about this particular rabbit-hole.) The other, the “baseline tariff,” has been defined in campaign comments as a 10% tax (or more recently a 20% tax) on all imported products — shoes, over-the-counter medicine, groceries, tea, auto parts, toasters, etc. — plus a 60% tariff on all Chinese-made goods. VP Harris, channeling straight-ahead thinker Alice in her North Carolina talk last Friday, summarizes the idea as follows:
“A national sales tax on everyday products and basic necessities that we import from other countries. … It will mean higher prices on just about every one of your daily needs: a Trump tax on gas, a Trump tax on food, a Trump tax on clothing, a Trump tax on over-the-counter medication.”
Here’s a small but important first-aid example:
The current U.S. tariff on band-aids and similar bandages is zero. (Termed “adhesive dressings and other articles having adhesive layers” in the Harmonized Tariff Schedule; HTS Chapter 30, lines 30051010 and 30051050.) Americans spend about $3 billion dollars a year on them, buying some locally and some from abroad. Trade data report $893 million spent on band-aid imports last year, with Europe and the U.K. supplying $299 million worth, China $263 million, Mexico $142 million, other Latin American countries (mainly Brazil and the Dominican Republic) $88 million, and other countries the remaining $140 million. At face value, raising the U.S. tariff rate from zero to 10% for the European/Latin/etc. bandages, and to 60% on the Chinese, would add another $220 million in costs. A 20%/60% variant would be $285 million. In practice, some or most Chinese products would likely shift to other production sites, so the direct cost to Americans would be a bit less. U.S.-based producers, though, would presumably start charging more. Families’ and clinics’ bandage bills would then rise, probably by 6% to 10% (that is, $150 million to $300 million in extra costs), depending on how sharply imports from China shrank.
A larger 10% or 20% tariff across all industries, applied to industrial inputs as well as consumer goods, will have larger and more complex price effects — since about a third of U.S. inputs are ‘intermediate goods’ used by manufacturers and farmers, it would raise U.S. production costs as well as consumer bills — but the basic one is higher prices. How much? The first Trump administration’s tariffs (on metals, at 25% for steel and 10% for aluminum, and 25% or 7.5% on about $350 billion worth of Chinese-made goods), raised overall U.S. tariff rates from a 1.4% average to 3.0%. Analyses by San Francisco Fed economists and others suggest this likely contributed about half a percentage point to inflation. Three nonprofit studies this spring and summer, using the 10% worldwide tariff — Peterson Institute for International Economics, Center for American Progress, and most recently the Tax Policy Center — expect it would raise families’ bills for goods by $1,500 to $1,820. This would add 6% to 8% to the roughly $23,000 an average household now spends on food, appliances, clothes, gasoline, and other goods.
As to whether you can do both Chapter 5’s promise of higher tariffs and prices, and Chapter 1’s promise to “bring down all prices” (setting aside whether the methods proposed for either one are credible): trust Alice, not the Queen.
FURTHER READING
Trump 2024 platform.… from the Lewis Carroll Society, Alice in Wonderland & Alice Through the Looking-Glass:
VP Harris in North Carolina, with the tariff passage about a third of the way in.
Three analyses:
Out last Thursday, the Tax Policy Center’s $1,820-per-family estimate.
Former White House economist Brendan Duke at the Center for American Progress.
Mary Lovely and Kimberly Clausing for the Peterson Institute on International Economics.
More on Chapter 5:
As a policy, Chapter 5 works directly against Chapter 1’s “bring down prices” promise. Assuming the Trump campaign abandons Chapter 1, doesn’t worry about price hikes, and sticks with higher tariffs, how credible are its claims that theses higher tariffs would mean lower trade deficits and manufacturing growth? Lots of things beyond trade policy, of course, go into big sectoral trends like this. But experience from the first Trump administration’s 2018/19 tariffs suggests “don’t count on it”.
1. Trade Balance: Each February the U.S. Trade Representative Office publishes a report entitled “The President’s Trade Agenda,” explaining Administration trade goals for the coming year. The 2017 edition, the Trump administration’s first, cited a U.S. manufacturing trade balance stat to argue that its predecessors had gotten things wrong:
“In 2000, the U.S. trade deficit in manufactured goods was $317 billion. Last year [i.e. 2016] it was $648 billion — an increase of 100 percent.”
This ‘$648 billion’ is far below the “1 trillion” manufacturing deficit cited in the 2024 platform. That is because, since the 2018/19 tariff round, the U.S. trade deficit has risen sharply in general and grown more concentrated in manufacturing, which had hit $891 billion in 2020 and reached $1.06 trillion in 2021 before turning down a bit by 2023.
What happened? As an economic axiom, national goods/services trade balances equal national savings minus national investment. A tariff hike, as a form of tax increase, should reduce government “dissavings”. Unless offset by a fall in private-sector savings, it should mean a slightly lower trade deficit. If fiscally outmatched by a tax cut elsewhere, though — as in 2018 and 2019 — the trade deficit will not fall but rise. Thus, the last Trump administration drove up the trade deficit rather than cutting it as it promised. Since tariffs are a form of tax applied particularly to goods buyers and goods-using industries (e.g. retail, manufacturing, and agriculture pay a lot more when tariffs rise; financial services or real estate not so much), the higher Trump-era tariffs are likely a reason the overall deficit has become more concentrated in manufacturing and the agricultural surplus has gone. The most likely outcome, if the Chapter 5 stuff goes into effect, will be similar but larger.
2. U.S. manufacturing sector: Likewise, manufacturing growth slowed after the first set of tariffs. At 10.9% of U.S. GDP in 2018, manufacturing was down to 10.3% by 2021 and has stayed there. With respect to employment, the Bureau of Labor Statistics finds manufacturing job growth not negative but slower after the tariffs than before: about 135,000 net new jobs per year from the financial crisis low in early 2010 to the spring of 2018 just before the Trump tariffs; an average of 57,000 per month since then.
The Census has U.S. exports, imports, and balances from 1960 to 2023 on one convenient page.
BEA’s “GDP by Industry” data series.
And BLS’ database (use Employment, Hours and Earnings for manufacturing and other sector employment).
And down the rabbit hole:
As promised fort hose interested: The “Reciprocal Trade Act” concept, set out by Dr. Peter Navarro (a first-term Trump trade official, recently released from the Federal Corrections Institution in Miami) in essay #26 in the Heritage Foundation’s “Project 2025” book, starting on page 765.
The idea is that either “our trading partners lower their applied tariff rates on specific products to U.S. levels in cases where their applied tariffs are higher,” or if they don’t, “to uphold the principle of reciprocity, the U.S. raises its tariffs to mirror levels”. In practice, there are about 150 “tariff schedules” in the world. This is somewhat less than the count of countries and non-independent customs territories, since some countries (e.g. the 27 EU members) are in Customs Unions and use the same tariff schedule. Tariff schedules are quite long: America’s 4,392-page schedule has 11,414 different 8-digit tariff lines (setting aside the extra complexity created by anti-dumping orders, FTAs, 232 and 301 tariffs, and so forth). According to the WTO’s Tariff Profiles 2023, Somalia’s 5,469-line schedule is the shortest, and the others range up from Mozambique’s 5,549 through Nigeria’s 6,890, Switzerland’s 8,703, the EU’s 9,785, Argentina’s 10,811, the Philippines’ 10,896, and India’s 12,088, to peak at Algeria’s 16,785.
All use the same basic 96 chapters, and the same “headings” and “sub-headings” down to 6 digits, so statistical agencies know which types of goods are moving around. But at the “8-digit” level which defines tariff rates, different countries’ tariff systems vary widely. For example, New Zealand has 75 tariff lines for shoes (mostly zero or 10%), while the U.S. has 134 shoe lines from zero to variable compounds like “90 cents/pair + 37.5”. Likewise, the U.S.’ nine jam lines go from 1.4% (currant) to 3.5% (apricot) to 7.0% (peach); Norway’s eight lines (Chapter 20) mix apricots and peaches together and give them a zero, but charge 8.34 kroner/kg for blueberry jam. To make this “Act” work, Customs officials and Congressional staffers would need to write up and then administer a system in which the U.S. had not nine jam lines and 134 shoe lines, but enough — likely several thousand – to match every jam and shoe line in each of the other 150 schedules. Across the entire schedule, the number of tariff lines would likely wind up in the millions. Not going to work, no.
