So far, Donald J. Trump’s approval ratings are in a leading position in many states. After he named his trade policy prospective in January, many economic analysts, politicians and businessmen hold opposite attitude and point out that the Trump’s trade policies will hurt US economy.
“If we Republicans were to choose Donald Trump as our nominee, the prospects for a safe and prosperous future would be greatly diminished, and I’m convinced Donald Trump would lose to Hillary Clinton.” Governor Mitt Romney gave a speech against Donald J. Trump on March 3.
I do believe Donald Trump’s trade policies will give rise to a US economy recession. In June 2015, Donald Trump said he would impose 35% tariff on Ford vehicles from Mexico. In January 2016, Trump proposed to impose 45% tariff on all products imported from China. Trump believes that these tariff policies can bring back the income which originally belongs to US. But these tariff policies may also lead to a recession, taking tariff policy against China for example.
First of all, retaliatory tariff from China is inevitable, if Trump impose the 45% tariff on Chinese goods. In fact, there is a lesson from the past. President Obama had already attempted the same tariff idea seven years ago, but it did not go well. During 2009, the Untied States was importing tires from China at a huge rate per year. Due to the low labor cost in China, the increasing number of “made in China” tires had a great comparative advantage and rapidly took over the US market. In September at that year, Obama increased tariff on tire imports from China for three years. However, in early 2010, China imposed tariff ranging from 50.3 to 105.4 percent on American poultry imports, which caused great loss for the US poultry factory. Because Obama’s administration violated WTO’s provision, China have the right to impose the retaliatory tariff. Thus, both country will suffer a great loss for the reasonless tariff. It is not good for the US economy and may cause recession.
Moreover, tariff will hurt American consumption, especially for the poor and middle-class consumers. “Made in China” goods would become more expensive than before due to the tariff. Consequently, it would pass this cost on to American consumer and immediately raise the poor and middle-class family budgets. Throwing back at Obama’s tariff policy, statistics show that consumers in 2009 spend $1.1 billion more on tires than before. Even worse, huge budget costs for consumers can cause people to spend less since they worried about the price would be higher in the future. Less consumption would probably cause recession.
Furthermore, imposing tariffs will not stimulate productivity of US manufactures. Many companies in US import the raw materials and industries supplies from China given the lower cost. After imposing tariff, these firms have to pay more in order to maintain normal operation. The heavy cost burden may cause layoff or wage cut, ultimately causing recession. Although there may have some US manufactures benefit from the tariff policies, it would not last for a long time. A tariff on Chinese goods would immediately make Japanese, Vietnam, Indian, Mexican and other foreign countries have a good chance to compete in American market. Thus, according to Trump’s theory, he would impose tariff to all these countries import and have no trade with other countries eventually. At that time, there would be a great recession.
“I think he doesn’t fully grasp the law of unintended consequences of what seems like a silver bullet, a quick fix. There are no silver bullets and quick fixes to our problems in the United States.” said Meg Whitman on March 4, who is Hewlett Packard (HP) Enterprise CEO.
If Trump still simply believe tariff policy can solve the problems in US and make the country to be better off, the actual movement of US future economy inversely turn out a great disappointment.