Trump’s Tariff Tightrope: Would Americans Benefit?

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Trump’s Tariff Tightrope: Would Americans Benefit?

Alongside mass deportations, Trump’s campaign pinpointed tax cuts, deregulation, and raising tariffs as key cornerstones of the next administration. The President-elect’s pick for the US Treasury Secretary, Scott Bessent, indicates that Trump intends to carry over business-friendly initiatives from his 1st term.

Bessent is not only a lifelong Wall Street investor, but his co-founding of Key Square Capital Management came after working under George Soros for his Soros Fund Management. The fact that Trump would pick a Democratic donor nominee and supporter of ******** causes alongside previous Clinton and Obama admins speaks to Trump’s prioritization of economics over ideology.

But how will Trump’s economic priorities most likely manifest?

Carryover from Trump’s 1st Term

In his first term, between 2017 and 2021, President Donald Trump set the tone with the Tax Cuts and Jobs Act (TCJA) at the end of 2017. Not only did TCJA reduce the top marginal tax rate from 39.6% to 37% for individuals, but the corporate tax rate went down from 35% to 21%.

To offset the budget revenue hit, TCJA removed and lowered some tax exemptions. One of them is the state and local tax (SALT), having limited its deduction to $10,000. This time around, Trump plans to eliminate that $10k limit.

Likewise, Trump intends to eliminate federal income tax on Social Security benefits, per his Truth

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at the end of July. The same would apply to overtime pay and tips. The latter promise was so popular that VP Harris promptly copied the proposal during the campaign.

However, the TCJA was already estimated to hit the federal budget at $2.3 trillion over the first decade, according to the Tax Policy Center. A tax cut expansion would undoubtedly widen that ***** significantly. The Committee for a Responsible Federal Budget indicated this would increase the national debt between $1.65 and $15.55 trillion.

From these wide-ranging figures, it is clear that Trump’s 2nd term will prioritize tariffs as the main revenue driver. Although tariffs are a flexible monetary tool, do they also come at a cost?

Return to Tariffs

As a tax levied on imported goods, it is safe to say that tariffs funded the US from their introduction in 1789 to the introduction of federal income tax in 1913, accounting for ~90% of federal revenue. In the modern age of central banking, dominated by the Federal Reserve and USD as the world’s reserve currency, it is also fair to say that the US is in a much stronger position to impose tariffs.

Canada and Mexico are to be the first tariff targets up to 25% on all products, which could affect automakers like General Motors (NYSE:). GM has built up its manufacturing facilities in both nations, pursuing lower labor costs in Mexico. On the other hand, Canada’s ample incentives for the sustainable automotive sector spurred GM to invest $2 billion in Ontario’s CAMI Assembly Plant for electric vehicles.

China should receive 10% extra tariffs, on top of the previously hinted flat 60% tariff increase. This is less controversial as both Trump’s 1st admin and current Biden admin already imposed heavy tariffs on ******** goods. In fact, this may be the main reason why Elon Musk jumped on the Trump train so eagerly. Against cheap ******** EVs, another round of tariffs would boost Tesla’s bottom line.

The EU should also expect tariffs. Trump’s 1st admin imposed 25% tariffs on steel and 10% on aluminum imports. They could easily be reinstated considering that the Biden admin merely suspended them. Given the trade deficit of

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between the US and Germany in 2022, there is certainly space for a new set of tariffs.

In the meantime, the ******** of the Nord Stream pipelines, combined with the EU’s focus on renewables, severely undermined the Eurozone economy, ending up in a continuous manufacturing recession. Such geostrategic positioning gives great leverage to the US in shaping up its protectionist, tariff-driven policies.

How Would Tariffs Affect US Consumers?

In May’s Columbia University study titled Trade Protection, Stock-Market Returns, and ********, the paper concluded that US-China tariffs had a 3% negative effect on US ********. The latter is a measure of businesses’ cash flows in the US, which trickle down to end-consumer.

A Harvard University

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in January found that the same US-China trade war resulted in “neither raised nor lowered US employment in newly-protected sectors”. In other words, Trump’s plan to reindustrialize the US would take time beyond his 2nd term.

According to J.P. Morgan Global Economics, the proposed new tariffs, 25% on Canada and Mexico plus 10% on China, would exert a $193 billion cost and raise inflation by 1%.

In turn, this could make the Federal Reserve revert from its interest rate easing course. However, as this would likely harm the stock market,

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, it is more likely that tariffs will be leveraged as a negotiation tool to benefit the US.

After all, in an intertwined global economy, tariffs can only be successful without other parties retaliating. In a no-retaliation scenario, the potential impact on inflation should remain under 1.5%, per Peterson Institute for International Economics.

President Trump can easily tap into the dominance and countries’ dollar-denominated debt to make it a no-retaliation scenario. This is on top of US’ geopolitical dominance that determines global trade routes. The fact that the Indian rupee (BRICS nation) is already at a new all-time low testifies to this strong negotiating position.

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#Trumps #Tariff #Tightrope #Americans #Benefit

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