As part of a statement on Tuesday, Donald Trump announced that he will impose a 45% tariff on Chinese imports if he becomes president. Trump said,
“I would do a tax. and the tax, let me tell you what the tax should be … the tax should be 45 percent.”
Trump has warned against the dangers of China throughout his campaign. Trump often places blame on China for job loss and a poor American economy.
Donald Trump’s policy on China can be found on his campaign website, you can read it here. In a four part plan he lays out, he does not include a tariff on Chinese imports. So the tariff could be in addition to his four part plan or a replacement of the plan he already laid out.
It is also unclear if Trump is placing the tariff as an act of protectionism or as a power play against the Chinese.
Trump could be using the tariff to make Chinese goods seem less attractive on the American market. This is known as protectionism.
If this is Trump’s plan, then Americans could see higher prices. The tariff would cause all Chinese products to cost Americans 45% more to buy. As Americans import over 400 billion dollars in Chinese products each year, a 45% tariff, will lead to price increase in American stores.
In the early days of the Great Depression President Herbert Hoover signed the Smoot-Hawley Tariff into law. The law is regarded as a disaster and even gets blamed causing the Great Depression to become a global depression.
Protectionism has been tried and it has failed. It was shown to cause an increase in price, something many Americans cannot afford.
Trump could also be using the tariff as a way to gain leverage against the Chinese. Chinese citizens will be hurt by the tariff as well.
When the cost of Chinese goods goes up by 45% in the American market place they will become less competitive. Products from other countries will not face the same barrier. This will result in companies moving from China into other low wage countries, such as, Mexico and Thailand.
Trump could then offer to take the tariff off of the Chinese products in exchange for the Chinese enforcing American copyright laws.
However, the Chinese hold over a trillion dollars in US debt and China is one of the largest importers of US products. Rather than give in, the Chinese could use their large holding of US debt to manipulate the value of the US dollar. China could also levy a tariff on American imports into China. Either of these actions by China would cause major problems for the US economy.
While Trump has been known for his bold statements, this could be his most destructive policy so far. A tariff of this size against China could spark a trade or currency war and will cause prices of products American buy to increase. This will only add more problems to a struggling American economy.