On November 7th, John Goyer joined members of the Tucson Committee on Foreign Relations to discuss U.S. trade policies in Asia and the enduring implications of the incoming Trump administration on tariffs.
"Trade is seen as a threat, instead of an opportunity."
In 2023, the U.S. GDP reached $27 trillion, with trade accounting for 20% of this figure. Notably, only 1 in 100 American enterprises currently exports goods and services, so the U.S. could achieve even greater economic engagement if trade restrictions were reduced. The US trade deficit reflects the fact that Americans consume more than they produce, a pattern that typically intensifies when the country is growing faster economically than its trading partners. As Goyer explained, "historically, the United States trade deficit expands when the economy is doing well." Goyer further addressed the impact of the Trump administration's proposed tariff plans, which have been criticized by sixteen Nobel Prize-winning economists.
Key insights include:
Tariffs are Taxes
The Trump administration plans to use tariffs to address the nation’s trade deficit: first, by implementing 10-20%% universal tariffs on all U.S. imports, and second, applying tariffs between 60% and 100% on imports from China, on top of existing tariffs. These measures are intended to address China's enormous trade surplus with the US which is caused, in part, by China’s excess production capacity far above the Chinese domestic economy’s ability to absorb its manufacturing output. In 2018, the former president imposed an additional 25% on already existing tariffs, The Biden administration largely maintained the Trump tariffs, and actually increased them in certain sectors such as solar panels and electric vehicles.
The Nobel Prize Economists’ Perspective on “Trump Tariffs”
Goyer highlighted the main conclusions drawn by sixteen notable economists in their assessments of the “Trump Tariffs.” To begin with, the tariffs would substantially raise consumer prices, with an estimated increase of $2,600 annually per household. This additional cost would amount to $46 billion per year for consumers if spending patterns remain consistent. Small businesses, particularly in industries such as clothing, toys, and bicycles, would be especially affected, while large corporations, especially in retail, automotive, and industrial sectors, would also experience significant impacts. The strain on these sectors is expected to lead to a “10% contraction” in the stock market.
Beyond the domestic implications, there is a strong likelihood of retaliatory measures from other countries, targeting specific U.S. states and congressional districts. For instance, Iowa could face losses of up to $1 billion in soybean sales, which would severely affect its economy. Overall, these tariffs would substantially weaken the trading system, further straining already rocky trade relationships and potentially leading to a chaotic, “free-for-all” environment.
Trump argues that the planned tariffs would effectively function as tax breaks, because the revenue raised would allow for reductions in domestic income and corporate taxes. Trump believes that U.S. market access is so important and profitable that other nations would be willing to pay “whatever” it takes to access these markets - but it is the US consumer who will pay the increased prices. Goyer concluded by observing that, mistakenly, “People aren’t supporting tariffs, they’re supporting tax cuts,” a recurring theme associated with the Trump administration since 2016.
Southeast Asia is Experiencing Rapid Growth
The United States is currently the largest investor in the Southeast Asian trade market, which is valued at half a trillion dollars and is experiencing rapid growth, 4% to 6% annually. By 2050, projections indicate that the region’s digital economy could reach one trillion dollars, driven by a digitally savvy and young population on the rise. This growth provides substantial opportunities for developing manufacturing and fostering critical foreign relationships. Trade is the lifeblood of Asia, and it is essential for the U.S. to retain access to these markets and to offshore production. Southeast Asia ranks as the world’s fifth-largest market and is the fourth-largest trade partner for the United States. Not only does the region hold vital mineral resources, but its strategic location along key waterways also heightens both economic and security interests.
What Should We Do?
While the long-term impacts remain uncertain, the consequences of the Trump administration’s proposed tariffs on U.S. trade policies in Southeast Asia are significant. These tariffs are poised to affect international and domestic markets, businesses, and consumers, while weakening trade relationships and strategic alliances. Although foreign markets may have limited economic capacity to retaliate, politically, some form of response is inevitable, resulting in a complex dynamic in U.S. foreign trade relations, Goyer stated.
Goyer recommends stopping the tariffs, and fostering more open markets with fewer barriers to US exports. This would allow the United States to reestablish a more sustainable market presence, potentially rejoining the Trans-Pacific Partnership (TPP), which the former president withdrew from during his first term, and continue expanding the reach of U.S. goods and services in global markets.
Sources:
John Goyer’s Speech at the Tucson Committee on Foreign Relations Event on November 7, 2024.
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