Trump's economic moves hit real people

 

Gordon L. Weil

Since the day Donald Trump became president for the second time, the U.S. has been flooded with disruptive actions, just as he intended.

In reaction, experts and the media have issued dire warnings about the effects, intended or not, of his moves – inflation, immigration, employment, science, commerce and the future economy. Almost all these reactions have focused on the deep and long-lasting national harm his actions will cause.

While Trump’s policies must be taken seriously and the warnings should be heeded, they may seem to be happening at a far higher level than the everyday lives of most Americans.  The best the critics can muster is the observation that the effects will soon find their way down to average people.

If the effects seemed remote or even not likely to happen before they would be erased by renewed prosperity, then Trump can be reassuring and convince people that short-term pain will bring long-term gain.  His message has been that he is so brilliant that people can count on him producing the promised prosperity.

That message is still pending, but it seems increasingly possible that the pain won’t be short term, so the gain is more remote than had been originally implied. The immediate test is whether that situation will have a big enough impact on the 2026 elections to produce a Congress able to rein in Trump or even offer its own policies.

The impacts of his policies are already becoming evident in the daily lives of average citizens.  I take a look here at some of what’s happening in Maine.

The Maine license plate has for decades proclaimed the state as “Vacationland.” Tourism means a lot to the state’s economy, and a lot of the tourists come from eastern Canada.  Canadians feel at home in a familiar culture with appealing beaches and attractions.  But with Trump’s ridiculous but often repeated claim that Canada should become the 51st state, everything has changed.

This absurdity coupled with an overt effort to destroy the Canadian economy to the point that it will seek refuge in the U.S. has amazingly and quickly turned a natural friendship into hostility.  Many Canadians now dislike the U.S. and have cancelled plans to come to Maine this summer.  Maine did not give him all its electoral votes, so he likely doesn’t care about the hit to tourism.

Then, there’s inflation, a big issue for Mainers.  Under former President Biden, as the economy recovered from abnormally low inflation during Covid, inflation took off.  Though it had greatly diminished by the end of Biden’s term, the memory lingered on, and Trump continually reminded voters of it.  Kamala Harris’ response was laughably weak, so Trump scored his point.

Instead of inflation abating, especially for home prices, it began to increase.  Trump’s tariffs were not absorbed by exporters or American retailers, as he had promised.  The free market, favored by him, worked normally, and prices eventually reached consumers.  Walmart and Target prices in Maine rose sharply, as they did elsewhere.  Grocery prices remain high in a state that’s at the end of the supply line.   People noticed.

Housing is especially sensitive.  It is among the top three concerns in the state, along with inflation and immigration. Higher building costs, resulting partly from expected increased Canadian lumber prices, put homes out of reach for potential buyers. The ability of the private sector and government to push tiny homes to ease homelessness was undermined.

That happened in a special way in Maine.  The University of Maine has the world’s largest 3-D printer, and it produced a complete tiny house.  But it needs federal funding to move ahead. Because Trump dislikes Gov. Mills’ insistence on state control of trans athletic policy and the president’s aversion to academic research, the project has begun laying off workers.

Like tourism, a mainstay of the economy is lobster fishing.  Lobsters are a high-cost food whose sales track the health of the national economy.  Trump has managed to create so much uncertainty throughout the economy that consumers are holding back on many purchases and there’s concern about the impact on fishing in coming months.

Every state, every market has seen its own effects of Trump’s policies.  Just as the U.S. cannot be an economic island, neither can any state.  Broad-brush national policies have local effects that should not be ignored, especially by Congress.  Trump’s vision of American industrial greatness comes at immediate cost to the paycheck-to-paycheck population.

Trump’s popularity, though waning, survives because many people like his immigration policy and take comfort in his economic nationalism.  The ultimate judgment may come when Maine fishermen, supermarket shoppers, tourism operators and home buyers vote for their next U.S. senator just 17 months from now.

Trump's tariffs: both good and bad

Gordon L. Weil

Many years ago, I found myself in the middle of an international war.

As tough as each side was, I was fortunate that the ammunition was not bullets.  It was chickens.

The U.S. was the major supplier of chickens to Europe, but the organization now called the EU or European Union wanted to promote its own production, mainly in Germany.  So, it increased its tariff on imported chickens.  American producers protested, and the government retaliated by raising U.S. tariffs on several products.  The result was the “Chicken War.”

The most important U.S. tariff was placed on trucks with the aim of cutting imports of VW vans.  But trucks from all over the world were affected.  Eventually, tariffs on other items, including chickens, were either dropped or lost importance.  But the tariff on trucks remains, decades later, though some foreign producers learned how to dodge it.

As the sole American on the EU staff, my role was to improve understanding between the U.S. and Europe and help defuse the conflict.  Eventually, EU President Walter Hallstein met with President Lyndon Johnson.  Acting on behalf of the Europeans, I had the unusual opportunity of negotiating with the State Department the joint statement of the two presidents.

The moral of the story is that tariff wars have consequences.  Trucks are probably more expensive in the U.S. today thanks to the surviving tariff and because American producers could raise their prices when faced with less competition from abroad.   The Chicken War was hardly just chicken feed.

President-elect Trump likes tariffs.  He sees them as both a threat and a promise.  He seems reluctant to accept that they drive up prices and are likely to bring retaliation that will reduce U.S. exports.  Because other countries can sometimes sell Americans essential products or have lower costs of production, he claims the U.S. is subsidizing them.

Beyond economics, Trump clearly would use tariffs as an instrument of foreign policy.  If he wants a country to halt the flow of immigrants or drugs or even to increase its own military spending, he uses the tariff threat to force change.  Trump’s surprising style, untethered to tradition, can cause others to take his threats seriously. 

Aside from the impact on exports and imports and on consumer prices, the liberal use of tariffs may bring political and economic change.  Trading partners will look for alternatives and not merely submit.

He threatens both Canada and Mexico with higher tariffs unless they stop illegal immigration.  As a result, they may take action even before he takes office.  But the U.S. depends heavily on Canadian crude oil.  If a 25 percent tariff were added, U.S. refineries and their customers would pay more.  And Canada can redirect some sales to Asia.

Trump may do a lot to boost European unification.  Europe is equal to the U.S. as a market, so it could absorb much of its production that can’t enter the U.S.  Higher world prices created by the Trump tariffs would be an incentive for the Europeans to step up their own production to displace American imports.

The aspect of tariffs that holds promise for Trump is that new federal revenues would be collected at the border.  His assumption must be that imports will not be slowed by higher tariffs, so they could create the income necessary to finance the federal government, which meanwhile would be cutting income taxes.

For the moment, that’s pure theory.  Tariffs drive up prices unless foreign suppliers swallow them.  In practice, imports decline when imported goods cost more. Lower imports may produce lower tariff revenues. The revenue effect is greater when the tariff increase is greater. So, tariffs may not be quite as magical as Trump seems to believe.

Yet good reasons exist for raising some tariffs.  That happens when Americans are willing to pay more for goods through a tax disguised as a tariff to achieve national policy goals. 

If the U.S. is concerned about excessive dependence on imports of essential goods, aiding domestic producers or ensuring worldwide environmental standards, greater tariff protection may make sense.  Labor unions oppose trade deals because jobs may be shipped abroad.  But helping workers comes at a price.

China profits from exploiting its own labor and using its polluting coal to produce low-cost goods for American merchants.  Its gains pay for increased Chinese military spending used to expand its influence, threaten Taiwan and to menace the U.S. and its allies on the seas. 

It makes sense to cut China’s sales to the U.S. to level the playing field and reduce its funds for military expansion.  Customers may willingly be taxed for this effort.

Trump’s tariff threats may sometimes work, but their effect goes well beyond raising consumer prices.  Higher tariffs have both economic and political effects, sometimes long-term and often not obvious.