In announcing his broadside against global trade, U.S. President Donald Trump claimed the aggressive tariffs will “make America rich again.” Few economists believe that, but the new tariffs are set to send American trade policy back to the 1930s.
Calling Wednesday “Liberation Day,” Mr. Trump imposed steep tariffs on allies and foes alike, including 20 per cent on imports from Europe, 24 per cent from Japan and 34 per cent from China, which are being stacked on top of existing duties on Beijing.
In the wake of the announcement economists scrambled to calculate the effective tariff rate the U.S. will now impose on global imports, meaning the total duties to be collected as a share of total imports.
Fitch Ratings estimates the reciprocal tariffs will push the U.S. effective tariff rate to 18 per cent. In a note, CIBC economists Andrew Grantham and Ali Jaffery estimated a tariff rate of 20 per cent. Meanwhile Evercore ISI, a research firm, said America’s tariff rate will hit 24 per cent on a weighted-average basis.
All estimates point to a massive increase from the 2.5-per-cent tariff the U.S. applied on imports from the rest of the world last year, and suggest American trade policy will be more restrictive than at any time since the Smoot–Hawley Tariff Act of 1930. The tariff surge that legislation put in place, which pushed the effective tariff rate to close to 20 per cent by 1933, is widely blamed for extending and deepening the Great Depression by sparking a global trade war.
Canada and Mexico escaped any additional tariffs this week, but continue to face duties on imports of steel, aluminum and some auto parts, as well as across-the-board tariffs on goods that don’t comply with the United States-Mexico-Canada Agreement, part of Mr. Trump’s purported effort to secure U.S. borders.
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