Even on Pause, Trump’s Trade War Runs Up a Big Price Tag
If you’re keeping track—and economists are making their best efforts—President Donald Trump’s trade war with the entire planet is running up quite a price tag. Even with a 90-day pause on some tariffs (except for China), the imposition or even just the threat of import taxes on goods from around the world and the inevitable retaliation by other countries is expected to take a bite out of the economy and people’s prosperity. Figuring out how much of a bite it will take is a trick, but there’s little doubt that it will be painful.
Trade War and Its Impact
The grimmest assessment of the trade war’s impact so far may come from the Penn-Wharton Budget Model (PWBM). In an analysis considering costs of the Trump administration’s tariff plans as of April 8, economists and data-crunchers Lysle Boller, Kody Carmody, Jon Huntley, and Felix Reichling warned that “many trade models fail to capture the full harm of tariffs.” Using their own model, the authors project that tariffs announced so far “would reduce GDP by about 8% and wages by 7%” over time.
The tariffs, the PWBM team adds, affect the economy through three main channels: The tax on imported goods imposes costs on consumers and businesses in the United States, with consumers suffering the brunt of it in the longer term; the reduction in imported goods “means foreign businesses and governments will purchase fewer U.S. assets, including U.S. federal government bonds”; and increased economic policy uncertainty from the tariff announcements will reduce economic activity as businesses and individuals put off investment, hiring, and spending while they wait to see how matters shake out.
The PWBM analysis concluded that the tariffs would raise revenue roughly equivalent to increasing the corporate income tax from 21 percent to 36 percent, or $5.2 trillion over 10 years. “While raising the corporate tax rate is generally seen as highly economically distort
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