Interview: Countries Should Unite to Fight Trump’s Tariffs

U.S. President Donald Trump’s “reciprocal tariffs” policy is believed to undermine the international trade system and could potentially drive the U.S. into recession, as expressed by Mark Kruger, a veteran Canadian central bank official [para. 1]. Trump asserts that the policy aims to reduce the U.S. trade deficit, revitalize manufacturing, correct trade practices, and increase revenue, but Kruger argues that these goals are "internally inconsistent" [para. 2].

Kruger suggests that instead of negotiating bilaterally with the U.S., countries should collaborate under a plurilateral framework like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) to lower tariffs among themselves and enhance global trade. This cooperative approach could yield substantial trade gains, possibly outweighing the losses incurred by U.S. tariffs [para. 3][para. 4].

Trump initiated a global trade war in early April with "reciprocal tariffs" ranging from 10% to 50% on various countries, including a 34% rate on China. This led to a 54% increase, later rising to 104% on Chinese tariffs [para. 5]. Recently, Trump announced a 90-day pause on tariffs implementation on several trade partners while negotiations are underway to avoid levies; however, the baseline 10% remains. Trump also retaliated by raising tariffs on Chinese imports to 125% following China's decision to elevate its levies on U.S. imports to 84% [para. 6].

Kruger criticizes Trump’s tactics as mere "showmanship" and argues that negotiations should be based on transparent rules, as intended by the international trading system, which is now being undermined by actions against the World Trade Organization (WTO) rules [para. 7][para. 8]. Trump's approach is seen as inherently contradictory and likely to impose considerable costs on U.S. consumers and the economy [para. 9].

Although the tariffs might boost tax revenues in the short term, imports could decline as companies adapt by setting up domestic manufacturing facilities, hence reducing long-term revenue generation. This contradicts the objective of simultaneously raising revenue and bolstering domestic manufacturing [para. 10][para. 11]. Kruger points out that if the tariffs aim to bring back low-end manufacturing, it’s a poor strategy that could impoverish Americans, as seen with iPhones primarily being manufactured in regions like China due to lower costs [para. 12].

The economic modeling by Budget Lab at Yale University predicts that these tariffs will push U.S. consumer prices up by approximately 2.3% in the short run, resulting in an average loss of $3,800 per household. Additionally, U.S. real GDP growth is expected to decelerate by nearly 1 percentage point by 2025 due to these tariffs and retaliatory measures [para. 14][para. 15]. Kruger indicates that with the U.S. GDP typically growing around 2% annually, a reduction of 1 percentage point might plunge the economy into recession within this year [para. 16].

The tariffs could burden most U.S. households financially, especially due to low savings, leading to diminished domestic demand. The economic impact on ordinary Americans might become evident as soon as this summer [para. 17]. Kruger warns that despite promises of prosperity, the tariff policy may lead to a major recession, which could eventually spur public opposition and policy reversals [para. 18].