Mark Schiefelbein/AP Photo
President Trump with his big chart of reciprocal tariffs
President Trump’s Rose Garden speech this afternoon was masterful. Except that the connection between the policies he unveiled and their likely impact was entirely delusional. This is Trump’s political magic. It’s too easy for his supporters to forget that he dwells in a universe of his own invention.
He described in great detail how the U.S. has lost factory jobs, how the trade deficit with the rest of the world has kept increasing, how free trade has not served America. He had a contingent of autoworkers from the UAW cheering him on. And he promised a restoration of American manufacturing pre-eminence.
“This is Liberation Day,” he declared. “This will be remembered as the day American industry was revived.” First, Trump followed through on his threat to impose tariffs of 25 percent on all imported cars. Second, he imposed what he termed reciprocal tariffs, with a different formula for every country. He literally took on the entire world.
The only thing Trump left out is that every one of these nations is planning to retaliate. The result will be an entirely gratuitous trade war, in which the U.S. has no allies.
In theory, if the rest of the world rolled over for these massive U.S. tariffs, that might produce a domestic manufacturing boom. But there will be retaliatory tariffs against American exports, and consumers everywhere will end up paying higher prices, creating a needless recession.
Trump brought out Commerce Secretary Howard Lutnick to hold a large chart, as a kind of human prop. The chart showed the reciprocal tariffs country by country. The tariffs are based on a rough calculation of tariffs and non-tariff barriers, which just happens to come out at about half in nearly all cases. Trump termed this “a discounted reciprocal tariff” because, he said, “the U.S. is kind.”
For example, on China, where the combination of tariffs and non-tariff barriers is calculated at the equivalent of 67 percent, the U.S. levies a reciprocal tariff of 34 percent. In the EU, where actual tariffs are only slightly higher than ours, the total tariff equivalent is supposedly 39 percent so the reciprocal tariff is 20 percent. And so on, country by country. India will be socked with tariffs of 26 percent; Taiwan, 32 percent, etc. The lowest tariffs, for countries with few barriers, such as the U.K. and Brazil, will be 10 percent.
In theory, if we start with higher tariffs, reciprocal reductions and the dismantling of non-tariff barriers could be negotiated, to bring tariff levels back down everywhere. This was the painstaking multilateral process during the era of GATT. Trump is proposing to do it, bilaterally, country by country.
But that give-and-take involves intricate bargaining about complex details, a process that takes years, while Trump’s depressive medicine takes effect at midnight tonight. And Trump has other fish to fry with many of these countries, which further complicates the process of trade deal-making.
Trump went so far out on a limb in making these tariffs the signature achievement of his presidency that it is hard to imagine him selectively relenting, as he has done on past ad hoc tariff threats. Trump’s speech included the usual whoppers and invented pieces of history. My personal favorite was his contention that the Great Depression occurred because the U.S. let tariff levels get too low.
The man lives in his own fantasy world, but reality will soon intrude. As a harbinger of things to come, stock futures collapsed on Trump’s announcement.
