Trump Imposes 2 New Tariffs Amid Fear Inflation will Soar

After several weeks of hype, US President Donald J. Trump, Wednesday, announced two new tariffs, calling April 2 “Liberation Day”.

According to CBS News, the two tariffs, which are aimed at erasing trade deficits between the U.S. and its trading partners, are:

• A 10% universal import duty on all goods brought into the U.S.
• So-called reciprocal tariffs that will be applied to imports from 60 nations.

Trump, who announced the tariffs in the White House’s Rose Garden, Wednesday afternoon, said his plans reflect “one of the most important days in American history; it’s our declaration of economic independence.” Even so, economists say the tariffs will boost prices on many products purchased by American consumers, at a time when inflation still remains elevated.

Giving an overview of the development, CBS News, said the first tariff will be a 10% across-the-board tax applied to all imports to the U.S.

The second tariff, reciprocal tariffs, will be applied to imports from 60 countries and are aimed at equalizing the trade imbalances between the U.S. and those nations.

Saying that the reciprocal tariffs “means they do it to us, and we do it to them”, Trump enthused that “It can’t get any simpler than that.”

One example provided by Mr. Trump, according to the CBS News analysis, is that the U.S. charges a 2.5% tariff on automobile imports, while adding that the European Union charges a 10% tariff on American car exports to EU nations.

“Such horrendous imbalances have devastated our industrial base,” he added.

But, what is  a reciprocal tariff?

At the moment, the U.S. and its trading partners charge each other different levies on the same products. Germany, for instance, puts higher tariffs on vehicles made in the U.S. than what Washington, D.C., charges on German vehicle imports.

Truly reciprocal tariffs would apply the same tax on U.S. imports that other countries place on American exports on a product-by-product basis. By charging countries only 50% of what they charge U.S. products, Mr. Trump said he is imposing “kind reciprocal” tariffs.

Mr. Trump said that the reciprocal tariffs will also include calculations to cover non-monetary trade barriers, such as when nations devalue their currencies to help boost demand for their products from other nations.

While the baseline 10% tariff will go into effect at 12:01 a.m. on April 5, the reciprocal rates will become effective at 12:01 a.m. on April 9, said the US President.

Why Trump is imposing new tariffs

While announcing the new tariffs, President Trump said the goal was to revitalize the industrial and manufacturing base of the U.S., promising that doing so will “make America wealthy again.”

Trump said the tariffs will help convince foreign businesses to relocate their factories to the U.S. Although Trump also promised that the tariffs would lead to lower prices for Americans, most economists are projecting that the tariffs are likely to boost inflation and lead to higher costs for the typical U.S. household.

For instance, the core personal consumption expenditures (PCE) price index — an inflation measure closely tracked by the Federal Reserve — could rise 0.5 percentage points to 3.5% by year end, according to a March 30 Goldman Sachs report. The core PCE rose 2.8 % in February on an annual basis, reflecting a slight increase from the prior month.

That estimate is based on Mr. Trump’s previously announced tariffs, including his 25% import duty on auto imports, as well as Goldman’s expectation for reciprocal tariffs that would average about 15%.