The #TrumpRecession Begins This Week. It is Entirely Avoidable.
by Erick Erickson
Presidents actually have very little sway over the economy. But tariffs are one way to affect the economy.
Donald Trump is set to announce tariffs on aluminum and other products as early as today. If he goes through with it, he will trigger a recession that undoes all the economic gains so far made during his presidency. It is not rocket science. It is Economics 101 -- basic economics that the left and right tend to agree on actually. Only the fringe on each side disagrees and the President has been captured by fringe economists and his own outmoded thinking.
Imposing tariffs on metals will raise the costs of guns, ammunition, beer, cars, and many other products Trump voters tend to love. This will completely undo the income gains made by the tax cuts.
Then, other countries will reciprocate thereby starting a trade war. Here is the thing the President does not seem to understand. These countries will only raise the cost of importing American goods. So the prices of Chinese goods in Europe will stay the same and the cost of European goods in China will stay the same. Only American goods being sold abroad will go up in price as goods coming into the United States will go up in price. So the United States alone will bear the cost of tariffs. Also, and this is a key issue, even with the tariffs in place some imported goods will still be competitively priced. Consequently, American goods will be more expensive elsewhere in the world while, in some cases, imported goods into the United States will still be priced competitively enough that Americans do not then start buying the American version of the good.
The only losers here are Americans. Donald Trump promised winning and he is losing at this. His trade team thinks a trade war will be, in the President's words, "easy to win," but when every other country on the planet is against us (as they are on this), we will not win. We will just price ourselves out of the market.
This will trigger a recession that will deservedly be blamed on President Trump. There will be an economic slowdown as American manufacturers slow their production rates due to decreased purchases abroad. American consumers will decrease their spending as the costs of basic goods increase.
President Trump wants to protect certain American industries, but his tariffs will actually wipe them out even faster. The very areas of the country President Trump must win again in 2020 will be hurt the most. This is all completely avoidable and the blame for what is coming will be on President Trump.
Regardless of who is in the White House, there is actually very little any President can do to stimulate or hurt the economy. Our free market tends to work mostly on autopilot. Imposing tariffs is one of the few ways the President can affect the economy and it will not be for good.
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