The Implications of Trump’s Ill-Conceived and Murky Tariffs
|in:Viewpoints
Trump announced sweeping new tariffs in a lengthy, rambling speech that if fully implemented would likely push the U.S. economy into recession and significantly slow global trade and economic activity, but based on Trump's history, the wisest interpretation is that he is open to bargaining with the leaders of trading nations and ultimately the effective tariffs will be lower and their economic impacts will be moderated. Even if the tariffs are moderated through negotiations, they are unambiguously negative, as markets are now signaling.
Invoking his authority under the International Emergency Powers Act of 1977 (IEEPA), President Trump assessed a 10% tariff on all imports effective April 5, and additional reciprocal tariffs on nations that Trump perceives disadvantage the U.S. through some combination of their own tariffs, fees and taxes. Trump bases these reciprocal tariffs on the simplistic calculation of each nation’s bilateral trade surplus with the U.S. divided by its exports to the U.S. According to the White House Fact Sheet of April 2, the IEEPA allows for Trump to modify the tariffs, either up or down, “if trading partners retaliate or decrease the tariffs [or] if trading partners take significant steps to remedy non-reciprocal trade agreements and align with the United States on economic and national security matters”.
These tariff pronouncements are both shaky and murky. The reciprocal tariffs are based on extraordinarily naïve calculations that defy economic common sense. And they are seemingly offered as bargaining tools. This makes an assessment of the magnitude of the tariffs and their impacts difficult.
A longer version of this commentary is available here.
Mickey D. Levy
AuthorMore in Author Profile »Mickey Levy is a macroeconomist who uniquely analyzes economic and financial market performance and how they are affected by monetary and fiscal policies. Dr. Levy started his career conducting research at the Congressional Budget Office and American Enterprise Institute, and for many years was Chief Economist at Bank of America, followed by Berenberg Capital Markets. He is a Visiting Fellow at the Hoover Institution at Stanford University and a long-standing member of the Shadow Open Market Committee.
Dr. Levy is a leading expert on the Federal Reserve’s monetary policy, with a deep understanding of fiscal policy and how they interact. He has researched and spoken extensively on financial market behavior, and has a strong track record in forecasting. Dr. Levy’s early research was on the Fed’s debt monetization and different aspects of the government’s public finances. He has written hundreds of articles and papers for leading economic journals on U.S. and global economic conditions. He has testified frequently before the U.S. Congress on monetary and fiscal policies, banking and credit conditions, regulations, and global trade, and is a frequent contributor to the Wall Street Journal.
He is a member of the Council on Foreign Relations and the Economic Club of New York, and previously served on the Panel of Economic Advisors to the Federal Reserve of New York, as well as the Advisory Panel of the Office of Financial Research.
Dr. Levy holds a Ph.D. in Economics from University of Maryland, a Master’s in Public Policy from U.C. Berkeley, and a B.A. in Economics from U.C. Santa Barbara.