The Trump economy is a dichotomy.
The underlying economy is strong. Employers added another 213,000 jobs in June, a booming pace of job growth. Sixty-three percent of small businesses are hiring, the highest portion since 1999. Incomes are picking up after a long period of stagnation.
But the economy of tomorrow is troubled—and Trump himself is the reason. New Trump tariffs on $34 billion worth of Chinese imports went into effect this week, with China imposing similar tariffs on $34 billion worth of American imports to China. This is the escalating, tit-for-tat trade war economists have been warning about since Trump first prescribed tariffs as his preferred solution to perceived trade imbalances.
The 25% tariffs will raise the cost of targeted imports, which will reduce sales of those goods, on both sides, forcing purchasers to either pay more or find cheaper substitutes. These price hikes and supply workarounds are bad news for the economy—and Trump says more tariffs are on the way. Since the Trump tariffs threaten growth and prosperity, this week’s Trump-o-meter reads FAILING, our second-worst score.
A 25% tariff on $68 billion worth of traded goods is a tax or added cost of $17 billion. As a share of the combined GDP of both countries—which is around $32 trillion—the tariffs are tiny. But adding up all the Trump tariffs—both implemented and threatened—brings the total to more than $400 billion worth of imports that could be subject to new tariffs. And it’s safe to assume trade partners would retaliate with similar tariffs on $400 billion of U.S. exports. New taxes on nearly a trillion dollars’ worth of trade—all to satisfy one man’s antipathy to free trade—represent a self-imposed economic debacle in the making.
Trump’s tariffs are already taking a toll
Already, some specific industries are feeling the pain of Trump’s tariffs. American soybean farmers are losing business as new Chinese tariffs limit their access to a big foreign market. A Missouri nail manufacturer laid off 60 workers because customers fled after Trump’s tariffs on imported steel forced the company to raise prices.
Harley-Davidson (HOG) is moving some U.S. production overseas to escape a new, retaliatory tariff imposed by the European Union, in response to Trump’s tax on steel and aluminum imports. General Motors (GM) said that if Trump imposes a potential tariff on car imports, the company would shrink rather than grow. That tariff would kill 195,000 U.S. jobs over a one- to three-year period, according to the Peterson Institute for International Economics—and that would rise to 624,000 lost jobs if targeted nations retaliated with their own tariffs.
Trump hasn’t owned up to the damage his protectionist policies can cause, or explained why some American workers should suffer so he can protect others. Instead, he famously said “trade wars are easy to win.” So far, he hasn’t won anything, except maybe a chaos contest.
The Federal Reserve is now worried about Trump’s tariffs, with the minutes of the Fed’s latest meeting revealing that “most participants noted that uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects on business sentiment and investment spending.” Other than that, the Fed thinks the economy is boffo. But why enjoy boring prosperity when you could shake things up?
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Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman