The president-elect is about to embark on an even more aggressive effort in his second term, pledging to impose 10% duties on all U.S. imports and 60% on goods from China.
Just how that will play out is unclear, but data from his first run at upending the trade landscape show it did shift U.S. imports away from China to other countries, especially Mexico and Vietnam. Still, the U.S. trade deficit continued to grow, topping $1 trillion over the last four years, and factory employment has flatlined amid an overall jobs boom since the COVID-19 pandemic.
STEEL SLIDE
Steel producers in the U.S. benefited the most from Trump's tariffs, winning a 25% global duty while aluminum producers saw a 10% duty. Those were somewhat diminished after Trump's first administration negotiated quota deals with Mexico and Canada and the Biden administration followed up with quota deals for the European Union, Britain and Japan.
Meanwhile, China's dominance of these sectors globally has kept prices low, contributing to lower capacity use rates.
Some plants initially revived by the duties, including a U.S. Steel mill in Granite City, Illinois, visited by Trump in 2018 to herald the industry's resurgence, have shut down blast furnaces. A Missouri aluminum smelter revived by the tariffs also was idled last year by Magnitude 7 Metals.
Trump's biggest first-term trade impact was to shatter decades of political consensus favoring ever-lower trade barriers that had allowed China to become the world's largest goods producer. Indeed, when Trump left office in 2021, the theme was taken up and amplified by President Joe Biden.
"Waking the world up to the economic threat from China was one of the top accomplishments of Trump's first-term trade agenda, as was the renegotiation of some of our major trading relationships," including a North American free trade deal, said Kelly Ann Shaw, a trade adviser during Trump's first term.
"We're now having a healthy debate in America about what industries we want to keep, which supply chains are critical and where we should focus our trading relationships," said Shaw, a trade lawyer at law firm Hogan Lovells in Washington.
Trump's tariffs of 25% on $370 billion of Chinese imports helped reduce the U.S. trade deficit with China from $418 billion in 2018 to $279 billion in 2023. But as companies shifted production elsewhere, new winners emerged: Mexico and Vietnam. The growth of their U.S. trade surpluses more than made up for China's decline.
RETALIATION, PRICING COSTS
This shift came at considerable cost. China hit back with retaliatory tariffs of 25% on U.S. soybean exports and largely shifted aircraft purchases away from Boeing (BA.N) to rival Airbus (AIR.PA) for years.
U.S. whiskey distillers were hit by EU retaliation over metals tariffs, but exports rebounded when those tariffs came off, said Chris Swonger, CEO of the Distilled Spirits Council of the United States.
China's promised increases in U.S. soybean volumes instead went to Brazil and Argentina. Scott Gerlt, the chief economist for the American Soybean Association, said that's a permanent shift.
"We never recovered the volume of China soybean exports since that trade war," Gerlt said. "A lot of land came into production in Brazil. Brazil surpassed us in exports to China."
The shift could help China weather a new trade war, but the crop remains the top U.S. export to China.
Commercial aircraft once held the top spot but have been slow to recover, while motor vehicle shipments to China also declined as China's electric vehicle industry has surged. Displacing them is crude oil, going from zero a decade ago to $13 billion in 2023.
The U.S. remains highly dependent on China for technology imports, including smartphones, laptop computers and video game consoles. Many of these products were spared Trump's first-term tariffs, but duties of 60% or more would raise costs considerably.
China's vast scale and efficiencies in sectors such as electronics and toys cannot be easily replicated elsewhere, creating difficult choices for companies facing steep tariffs, said Mary Lovely, a trade economist who is a senior fellow at the Peterson Institute for International Economics.
"These are enormous enterprises. How do you recreate that in another country that's a tenth of the size of China? You don't," Lovely added.
Trump's first-term tariffs did not cause a spike in consumer price inflation, but they were limited in scope and caused only one-time price increases, said Doug Irwin, an economics professor at Dartmouth College who specializes in trade.
"Tariffs are just a tax, and so they lead to a one-off level increase in the price of those goods," Irwin said. "They're not this continuous rise in the general price level, which is inflation."
The price impact from further tariffs also depends on factors such as U.S. fiscal and monetary policy that may lift the dollar's value, trade retaliation that could lower other domestic goods prices, and whether or not importers or exporting firms absorb some of the tariff costs.
TARIFF REVENUE
Trump also has pledged to pay down U.S. debt with tariff revenues. On Tuesday, he promised to create an "External Revenue Service" to collect tariffs, duties and all revenue from foreign sources. Collections from his punitive duties since 2018 suggest a vast increase would be needed to make a dent in U.S. deficits now approaching $2 trillion a year before an expected extension of expiring tax cuts, estimated to add more than $4 trillion in new debt over a decade.
Total collections from the China, steel, aluminum and solar panel tariffs have totaled $257 billion over seven years, a rounding error amid cumulative deficits of $12.57 trillion during that time.
The conservative-leaning Tax Foundation estimates that a 10% universal Trump tariff would raise about $1.7 trillion over 10 years, including accounting for a negative impact on economic growth.
