As promised, U.S. President Donald Trump delivered his deferred tariffs on Aug. 1, with punitive import taxes on nearly every good from countries around the world. In all, Trump announced new and arbitrary tariff rates on 92 countries, ranging from 15 percent (for many countries) to nearly 40 percent or more (for Laos, Myanmar, Switzerland, and Syria).
Though the new tariffs are overall lower than the sky-high rates Trump announced in April, which managed the rare trifecta of crashing the stock, bond, and currency markets, his latest moves still rattled global markets. The U.S. Dow Jones and S&P 500 both opened sharply lower, European stocks suffered, and nearly every Asian index was in the red.
It’s another jolt of uncertainty for the global economy after a three-month reprieve, but there may be more uncertainty to come: The legal foundation for Trump’s tariffs was already deemed illegal by one court, remains under legal challenge in another, and may end up before the Supreme Court, meaning none of this week’s Sturm und Drang may ultimately stick. Trump’s love of tariffs, though, likely will.
“Trump has been on a tariff mission since the 1980s,” said Josh Lipsky, the senior director of the GeoEconomics Center at the Atlantic Council. “His campaign pledge was 10 percent on the world and 60 percent on China, and now look at where we are.”
The issue, both in April and in the latest salvo, is Trump’s continued misdiagnosis of both the problem and the solution. He says he is concerned by ballooning U.S. trade deficits, even though economists have spent decades explaining why they don’t ultimately matter and has used those persistent deficits to invoke never-before-used emergency powers to abrogate congressional authority over trade and raise taxes on imports.
The upshot, based on the torrent of new tariffs announced since January and including the latest ones, which are slated to become effective on Aug. 7, amounts to roughly a $600 billion annual tax hike on U.S. consumers and businesses. U.S. import duties were already at their highest levels since the Great Depression even before the latest announcement.
All that spells bad news for U.S. growth, inflation, and unemployment. July’s new job numbers were wildly underwhelming, with just 73,000 new jobs created, while the May and June jobs reports were revised sharply downward, all in large part due to uncertainty over Trump’s tariffs, which has chilled both consumer spending and business investment. The Budget Lab at Yale University, even before tabulating the full impact of the Aug. 1 tariffs, expected the impact to amount to a bill of about $2,400 per U.S. household, while slashing 0.5 percent off GDP growth this year and next and vaporizing half a million jobs.
It’s a new reality for a country, and a planet, whose post-World War II prosperity was ushered in by a decades-long effort to dismantle barriers to trade.
“My whole view of this is that in seven months, Trump has reset the global trading system and made the U.S. a more protectionist system, and we are not going back,” Lipsky said.
Trump’s three-month pause after the disastrous reception to his April tariffs was meant to give the administration time to negotiate a slew of trade deals. In the end, the administration has secured agreements with several countries and blocs, including major trading partners such as the European Union, Japan, South Korea, and the United Kingdom.
But not a single one of those deals offers clarity in terms of what each side has actually agreed to, and there are no guarantees that U.S. trade policy won’t change on a whim in a matter of days or weeks. Canada, which for decades has had a free trade agreement with the United States, was surprised and “disappointed” to find itself subject to 35 percent tariffs under the Aug. 1 plan, ostensibly because of the 43 pounds of fentanyl seized at the U.S.-Canadian border last year, which represents just 0.2 percent of the total volume of the drug coming into the United States.
Or take the agreement reached last weekend between Washington and Brussels, which left the European Union facing 15 percent U.S. tariffs rather than the 30 percent it had been threatened with. Under the nonbinding, still-to-be-finalized framework deal, the EU would ramp up purchases of U.S. energy exports to $250 billion a year during Trump’s presidency, a target that one expert commentator charitably described as “delusional.” Last year, the EU imported a total of $64 billion of U.S. coal, oil, and natural gas. Trade experts already spy parallels with Trump’s “Phase One” trade deal with China, which never came close to realization and did nothing to address the fundamental trade issues dogging the bilateral relationship.
“We found it hard to reconcile $750 billion over three years purchasing ambition with either U.S. supply or EU demand,” ClearView Energy Partners, a Washington-based consultancy, wrote in a recent research note.
Or take the trade deal the administration trumpeted with Japan, under which the United States thinks Japan will invest $550 billion, with nearly all the profits from those investments accruing to the United States, in exchange for a tariff rate of 15 percent. Japanese officials note that those would be loans, not investments, and have no idea what to make of the profit-skimming provisions. South Korea is in the same boat. Taiwan, which didn’t make those same kinds of investment pledges, now faces 20 percent tariffs on all goods, plus worries about bigger and additional tariffs on exports to the United States of semiconductors, which until recently were items Washington wanted to get more of and more cheaply.
For the rest of the world, countries don’t even have ambiguous and one-sided trade deals, just random numbers. Switzerland, which got tagged with 39 percent tariffs on Friday, is worried about losing manufacturing jobs in an export-driven economy that is fairly reliant on the United States. Bern is still holding out hope that its main export, pharmaceuticals, will only be subject to separate, future tariffs on the order of 25 percent, but nobody knows for sure what will happen there.
India is worried not only about the breakdown of trade talks this summer, and the ensuing 25 percent tariff, but also Trump’s threats to deploy so-called secondary tariffs to penalize countries (such as India) that still buy Russian oil.
The irony, of course, is that Trump’s tariff avalanche may be illegal.
The tariffs—specifically his use of a Carter-era law to declare a national emergency because of imports—was already deemed illegal by a trade court in May, and the appeals court currently reviewing the case seems equally skeptical of the Trump administration’s claims that it can invent new powers to address emergencies that don’t exist.
The Federal Circuit heard oral arguments on that case on Thursday, and a ruling, which could come this month, looks to be bad for Trump. But that would just kick the legal fight to the Supreme Court, which may not have the deference to constitutional delegations of trade authority, or to the Constitution, that lower courts have shown. Even if the tariffs are ultimately struck down, the administration has a slate of other authorities, including some dating back to the 1930s, that it could call on to restrict free trade.
Either way, Trump is determined to use tariffs to raise revenues and reshape the U.S. economy. In his first term, and earlier in this one, markets eventually forced him to correct course—for a spell. Those days may be past. Congress just passed legislation that will bake in persistent fiscal deficits, which all but requires the United States to rely on tariff income in the future, regardless of who is president, to cover even part of the gap. Trump’s tariffs, in other words, may outlive him.
“I think these tariffs are going to stick around. It’s beyond Trump at this point,” Lipsky said.