Ahead of Trump’s ‘Liberation Day’ announcements, Vincent Reinhart, Chief Economist at BNY, comments:
“The argument for imposing tariffs is complicated – without question, the case for free trade in a small and open economy is well-established. But three other considerations come into play.
“First, efficiency is not the be-all and end-all. A nation may choose tariffs as an outcome to subsidize jobs in some sectors, ensure domestic production of strategic goods, put pressure on trading partners to change their behaviour, or route supply chains through dependable allies.
“Second, the US is large and, in principle, can use tariffs to lever market power as a dominant purchaser. Third, tariff duties raise revenue, which were especially relied on before the 16th Amendment to the Constitution authorized the federal income tax.
“The White House has relied on all three motives to justify higher tariffs and seems confident it has leverage on trading partners and domestic pricing. Policy is going back to the 1890s, when tariff rates were high, duties a significant share of federal revenue and the role of the US in geopolitics shifting. At that time, industry was highly concentrated, particularly in sectors like steel, oil, and railroads.
“We may return to those policies, but there will be a need to manage the conversation and mitigating transition costs”.
