- ‘Prices in the US will rise significantly from these policies, but this is a level change, not a continuing inflation,’ says Charles Calomiris, an economist at Columbia Business School
- A large part of Trump’s tariff strategy is untested, but it could prove useful to counter economic rival China, says University of Missouri-St. Louis’s Max Gillman
ISTANBUL
Economic uncertainty is the buzzword right now when it comes to the US, as rumors swirl about President Donald Trump’s tariff policies potentially driving the world’s largest economy into recession.
Trump himself has downplayed those fears, suggesting that the situation could be more of a “period of transition” – a comment that critics view as an acknowledgment of tough days ahead.
On Wednesday, Trump’s tariffs on all steel and aluminum imports into the US took effect – 25% duty “with no exceptions or exemptions.”
Allies and rivals alike have voiced criticism and vowed to respond in kind, paving the way for a scenario that economists warn bodes ill for both the US and the world.
Some do see the tariffs as necessary to protect American industries and curb illegal activities such as drug trafficking, but others argue they will drive up prices for US consumers and strain relations with key trade partners.
The US Federal Reserve’s Beige Book recently reported that most of the 12 Federal Reserve Districts expect prices to rise due to Trump’s tariff policies – a burden that analysts say will fall on American consumers.
Charles Calomiris, an economist at Columbia Business School, believes the tariffs on Mexico and Canada are bad news for the US economy and predicts they will not last long.
Tariffs on China will likely be raised and remain in place due to the ongoing geopolitical conflict, but tariffs on Mexico and Canada are short-term political tools, he told Anadolu.
He explained that the tariffs will result in noticeable price increases but will not cause long-term inflation.
“Prices in the US will rise significantly from these policies, but this is a level change, not a continuing inflation,” he said.
Calomiris also pointed out that trade reciprocity plays a crucial role in determining how tariffs affect global markets.
If other countries keep their tariffs on the US low, then the US will eventually do the same, so this need not become a “worldwide” trade war, he said.
For the same reason, he added, the US-Mexico-Canada Agreement (USMCA) made few major changes to the North American Free Trade Agreement (NAFTA), despite Trump’s strong rhetoric about renegotiating trade deals.
As for the World Trade Organization’s (WTO) role in resolving trade disputes, Calomiris was blunt: “The WTO is largely irrelevant these days.”
Strategic use of tariffs
The Trump administration argues that tariffs are necessary not only to address trade imbalances but also to curb illegal immigration and drug trafficking.
Max Gillman, a professor of economic history at the University of Missouri-St. Louis, says the US is imposing tariffs in order to “level the playing field” in international trade.
A large part of this strategy is untested, he added, but it could prove useful against China, which has long been accused of violating WTO rules on intellectual property, charges it denies.
Until recently, China had also restricted foreign direct investment in companies to less than 50% in violation of WTO rules, Gillman said.
“This way, China would own the new technology and this was the only way US companies could enter the Chinese market for nearly all of the last quarter of a century,” he said.
“As a result, China’s companies expropriated US technology in whole or in part and then copied it to create their car and now commercial airplane industry.”
On US tariffs to pressure Mexico and Canada to tighten border controls and reduce the flow of illegal drugs and migrants, Gillman said Washington would use them strategically for specific industries on “a one-by-one basis.”
“The car industry is the biggest that exports to the US from Canada and Mexico … and so they have reached an agreement for a pause through the one-month delay,” he said.
He believes that if implemented carefully, the tariffs could have geopolitical benefits.
These steps put pressure on the EU to contribute more to defense spending and could also push the UK toward a long-awaited free trade agreement with the US, he said.
Impact on US labor market and manufacturing
While the tariffs are designed to protect American industries, experts warn they could also lead to higher labor costs and supply chain disruptions.
Most countries protect their auto industries because they create jobs and generate economic growth, Gillman said.
The US lost much of its manufacturing base after the 1970s when it allowed Japanese car imports to take over the market, and is now facing the same challenge from Chinese automakers, he explained.
He supports the Trump administration’s goal of revitalizing domestic auto manufacturing.
“I believe it is strategic to have a fully functioning automobile industry in the US, and within the goals of the current administration,” he said.
However, he acknowledged that this strategy comes with trade-offs.
“Certainly, industries will need to reallocate resources, such as back in the US. This does increase labor costs for any affected companies,” he said.
“It will raise some prices, but not be inflationary since these are one-time price increases that do not keep rising over time, as is necessary for inflation to be affected.”
As for the WTO’s role, Gillman asserted that the organization has “solved very few problems historically” and reiterated that “China’s many violations were never litigated at all by the WTO.”
