It’s Tariff Time, Again

Ana Swanson discusses Donald Trump’s protectionist trade strategy, highlighting the impact of his trade tariffs on the American manufacturing sector and economy.

Trump viewed tariffs as the primary tool to bring manufacturing jobs back to the U.S.

Trump saw imposing tariffs as central to reviving American manufacturing and jobs.

Trump imposed large tariffs on steel, aluminum, and other imports to raise the prices of foreign goods and make American-made products more competitive.

In an effort to invigorate domestic production, Trump targeted industries such as steel that were previously U.S. dominant but had seen significant outsourcing. He notably set tariffs on goods including solar panels, washing machines, and particularly steel, at levels not seen since the 1950s. Swanson notes that these were tied to broader goals such as halting immigration and drug entry into the U.S.

The tariffs were intended to boost domestic production and national security, but they also led to retaliatory tariffs from U.S. trading partners on American exports.

In 2018, Trump imposed tariffs of 25% on foreign steel and 10% on aluminum globally, which included exports from allies such as Mexico and Canada. These measures aimed to give American-made products a competitive edge by increasing the cost of imports.

While the tariffs did increase U.S. steel and aluminum production, they also hurt other industries that rely on those materials.

The higher metal prices resulting from the tariffs raised costs for manufacturers that use steel and aluminum, such as automakers, leading to decreased production and profits.

Swanson states that while Trump’s tariffs succeeded in bolstering the steel industry and addressing national security concerns, they adversely impacted overall U.S. manufacturing in subsequent years. Industries reliant on steel and aluminum, like automotive manufacturers, experienced raised production costs, leading to decreased profits and production. The CEO of ...

President Biden's approach to trade and manufacturing deviates from traditional methods, focusing on government subsidies and investments to bolster domestic production.

Biden's approach focuses on using government subsidies and investments to boost domestic manufacturing, rather than relying primarily on tariffs.

Under Biden's presidency, emphasis is placed on keeping jobs within the U.S. and nurturing U.S. manufacturing through financial support. This stands in contrast to Trump’s tariff methods, although some of Trump's tariffs have been maintained by the Biden administration. Biden’s policy, which approves hundreds of billions of dollars in subsidies for American companies, aims to incentivize companies to domestically produce goods, such as computer chips.

The Biden administration pushed for and secured over $50 billion in funding through the CHIPS Act to support the domestic production of computer chips, a critical technology.

The CHIPS Act illustrates Biden’s strategy, allocating approximately $50 billion to amplify chip manufacturing in the U.S. This direct investment model transforms the government into a venture capitalist of sorts, selectively dispersing funds to companies and industries of strategic importance.

For instance, the government is making investments in companies entrenched in the domestic production of computer chips and their associated research and development. Intel is a prime beneficiary of this focus, expected to expand its factories and employ more workers. Despite some setbacks, including technological delays, layoffs, and challenges in opening a new factory, the government continues to invest in a variety of chip makers. One success story is the new plant in Arizona from Taiwanese chip maker TSMC.

The success of Biden's approach is still unfolding, as the long-term impacts of these investments take time to materialize.

While new manufacturing facilities are being built, it ...

Swanson and Barbaro tackle the effectiveness of two different economic approaches being taken by recent administrations—the Trump administration's tariff approach and the Biden administration's direct investment strategy—to address the shift away from traditional free trade policies towards more protectionist measures.

Both the Trump and Biden approaches involve some degree of protectionism and a shift away from free trade policies.

Swanson describes President Biden's approach as fundamentally different from President Trump's, though with some overlap. The Trump administration employed a tariff-focused strategy to try to boost domestic production. The approach took a more immediate, blunt force, intending to incentivize companies to move manufacturing back to the United States. On the other hand, the Biden administration has retained some of Trump's tariffs but shifted policy emphasis towards subsidies and long-term investments in key industries.

It is recognized as a challenge to conclusively determine which of the two approaches is more effective, as both have demonstrated mixed results and face ongoing challenges. For example, the Trump tariffs were criticized by Biden as wasteful, yet the latter's large investments may lead to government overreach.

The tariff approach used more immediate, blunt force to try to boost domestic production, while the Biden model relies on longer-term, targeted investments.

The two strategies differ in urgency and method: while tariffs are an immediate economic lever often leading to counter-tariffs and potential trade wars, direct investments are a long-term play aimed at building industrial capability.

It is difficult to definitively say which approach is more effective, as both have had mixed results and face ongoing challenges.

There's a debate on whether tariffs or industrial policy performs better, weighing their advantages against potential disadvantages. Tariffs may prompt a quick reaction in the market but also carry the risk of instigating trade disputes and increasing consumer prices, while direct investments may yield sustained growth but require considerable government spending and risk inefficiencies.

The two approaches are likely to coexist and interact with each other going forward.

Michael Barbaro suggests that tariffs and direct investment are not mutually exclusive and may be used in conjunction. This coexistence is evident in how the Biden administration has kept some of Trump's tariffs while simultaneously implementing its own investments in domestic manufacturing.

Many of Trump's tariffs remain in place under the Biden administration, and Bid ...