How possible Trump tariffs could affect US trade relations

In his first term, Donald Trump famously increased tariffs on Chinese goods, but what will he do in his second term?

Raymond Robertson is director of the Mosbacher Institute for Trade, Economics, and Public Policy at the Bush School of Government at Texas A&M. He joined the Texas Standard to discuss tariffs in Donald Trump’s second term. Listen to the interview above or read the transcript below.

This transcript has been lightly edited for clarity:

Texas Standard: I remembered that President Biden began imposing tariffs on Chinese electric vehicles (EVs) earlier this year. Am I missing something? I think they were 100%

Raymond Robertson: Yes, and that was the Biden administration’s strategy. And we expect high tariffs and anti-trade measures to continue in the next government. Biden and Trump’s trade policies are actually almost very similar.

Well, that’s interesting because I think a lot of people are talking about how Trump’s expected imposition of tariffs would raise prices for Americans, and that tariffs are generally not viewed as a very effective tool. In fact, it can be a counterproductive tool when it comes to improving the economy.

That is absolutely correct. And one of the main reasons for that is that we’re planning on putting tariffs on intermediate products when people use these things for production in the United States

So if the cost of these inputs goes up, that means we won’t need as many workers to put these things together, which can actually have a negative impact on employment in the long and short term.

So why are people so focused on this tariff issue when in fact, as I hear you saying here, Trump’s approach seems to closely mirror Biden’s approach?

Yes, I think people are very focused on that because Trump has been much more aggressive and has wanted to impose tariffs not just on China but on everyone in the world. And the level of tariffs he wants to impose is much higher.

While the economic impact is similar, the economic impact will be much greater because Trump’s tariffs are higher and more widely applied.

Now, when we talk about this broader application of tariffs, I hear that Mexico could be on the receiving end here.

Yes, and that would be a big problem for Texas because Mexico is the number one trading partner. And we import and export many goods. And much of Texas’ economy depends on our trade with Mexico.

Imposing these tariffs on Mexican goods will therefore hurt employment in Texas and drive up prices, especially in Texas.

More specifically, I think a lot of people mention Detroit when it comes to car production, but actually Mexico is a big part of that chain.

Absolutely. Their number one export hit for many, many, many years has been cars and car parts. In fact, I mean, more than 20 years.

And they are, of course, closely tied to the economy in Detroit, but also to the economy in Texas, because automakers in Texas rely on parts from Mexico to complete their cars. So if the prices of these inputs go up, that means either the price of the cars goes up or that fewer workers are needed in Texas and Detroit to make the cars.

How likely is it that a tariff war or trade war will actually break out, with Mexico now the US’s largest trading partner?

Well, it’s almost certain.

I mean, the new president of Mexico, Claudia Sheinbaum, has the attitude that she’s not as pro-free trade as some of her predecessors. And it is very likely that it will impose retaliatory tariffs against the United States. And that is, so to speak, their position, their administration.

So it is very likely that a trade war would break out, which would only cause damage on both sides of the border and worsen the situation of both countries.

And I would imagine you’re thinking about how many workers in some of these factories in San Antonio in the Dallas-Fort Worth area could have a big impact on their livelihoods.

Yes, I actually think that’s entirely possible, and I’m very worried about that. And that’s why we want to try to promote trade with Mexico to maintain jobs in the United States.

We are actually part of an economy. Texas and Mexico are part of a single labor market and we depend on each other. So putting up barriers will make both sides worse.