If the Trump administration enacts additional tariffs on automobiles and parts as well as additional Chinese tariffs, the Tax Foundation model estimates that GDP would fall by an additional 0.38 percent ($94.4 billion), resulting in 0.24 percent lower wages and 292,648 fewer full-time equivalent jobs.
Retaliatory Tariffs Enacted and Threatened
Several countries have announced plans to impose tariffs in response to the U.S. tariffs on steel and aluminum. The tariffs target American products such as denim, bourbon, whiskey, and agricultural commodities, for an estimated total tax of $32.8 billion. More countries are considering imposing retaliatory tariffs on the United States, but have not announced details; this includes Japan.[17]
China
In response to the tariffs on steel and aluminum, China announced tariffs on about $3 billion worth of American products, including a 15 percent tariff on 120 products, such as wine, nuts, and steel pipes, and a 25 percent tariff on 8 other products such as recycled aluminum and pork.[18] And in response to the Trump administration’s tariffs on $50 billion worth of imports, China responded in kind.
After President Trump ordered his administration to increase the proposed threat of 10 percent tariffs on $200 billion to 25 percent, China announced it would place tariffs on an additional $60 billion worth of U.S. goods at a rate of up to 25 percent.[19]
Mexico
In response to the tariffs on steel and aluminum, Mexico announced a tariff of 25 percent on products like cheese, steel, and Tennessee whiskey, and a 20 percent tariff on goods like pork, apples, and potatoes. The value of imports subject to these tariffs is $3 billion.[20]
Canada
Canada published two tables of goods to be subject to a 25 percent tariff and 10 percent tariff, representing the value of Canadian goods subject to the steel and aluminum tariffs, or about $12.8 billion.[21]
European Union
The European Union plans to place a 25 percent tariff on about 200 American products, including denim, bourbon, motorcycles, and peanut butter.[22] The total value of the goods subject to the tariffs is $3.3 billion.
India
India plans to increase its tariffs on 30 U.S. products in order to raise $241 million in revenue.[23] The increased tariffs will target almonds, walnuts, apples, and some chemical and metal products.
Turkey
Turkey announced its decision to begin implementing tariffs on U.S. goods on June 21, 2018. The tariffs would cover goods such as coal, paper, walnuts and almonds, tobacco, whiskey, automobiles, cosmetics, machinery equipment, and petrochemical products. The burden of the tariffs will be commensurate to the U.S. imposed tariffs on steel and aluminum, or about $266.5 million.[24]
Turkey has announced plans to double tariffs on 22 U.S. products including cars, alcohol, coal, and tobacco.[25] They expect to raise $533 million in additional revenue due to these increased tariffs.[26]
Russia
Russia announced its decision to begin implementing tariffs on U.S. goods such as fiber optics and different types of equipment at rates of 25 to 40 percent.[27] The tariffs are intended to raise $87.6 million, and Russia has warned it could impose further tariffs, up to $537.6 million, commensurate to the effect on Russia of U.S.-imposed tariffs on steel and aluminum.
Model Results
If these foreign jurisdictions enacted the tariffs that they announced, the Tax Foundation model estimates that U.S. GDP would fall another 0.09 percent ($23.5 billion) and cost an additional 72,864 full-time equivalent jobs.
It is important to note, however, that unlike the tariffs that the United States could enact, which would raise some federal revenue, tariffs enacted by foreign jurisdictions would raise no revenue, but result in lower U.S. output.
Total Impact of Enacted and Announced Tariffs
If all tariffs announced thus far were fully enacted by the United States and foreign jurisdictions, U.S. GDP would fall by 0.59 percent ($148.33 billion) in the long run, effectively offsetting one-third of the long-run impact of the Tax Cuts and Jobs Act. Wages would fall by 0.38 percent and employment would fall by 459,816.
The 0.59 percent reduction in long-run GDP is one-third the total long-run impact of the Tax Cuts and Jobs Act, which we estimated to raise GDP by 1.7 percent in the long run.
Conclusion
If additional tariffs and in-kind retaliatory actions continue to be taken, the harm caused to U.S. businesses and consumers would increase. The Trump administration would do well to not follow a path of imposing tariffs that could dampen the U.S. economic outlook.
