Would Trump’s tariffs really be that bad? With Kimberly Clausing

Episode Summary

Executive Summary: The episode argues that a second Trump term could bring far more damaging trade policy than the first: broad tariffs on all imports, especially China, would likely raise prices, disrupt supply chains, provoke retaliation, and worsen stagflation risks. Economist Kimberly Clausing says legal and political constraints may not stop Trump, and exemptions would add rent-seeking without avoiding harm.

Main Topics: Scale and severity of proposed Trump tariffs (Priority: 5/5): Clausing rates Trump’s first-term trade policy as damaging but not catastrophic, while saying the new tariff agenda—10% on all imports and 60% on China—would be far more harmful on its own and even worse when combined with deportation, tax, and Fed-related policies. Whether Trump would actually implement the tariffs (Priority: 5/5): The discussion examines executive authority, possible congressional action, and legal justifications such as section 232, section 301, and emergency powers. Clausing argues there are multiple paths to implementation, so claims that the tariffs are unrealistic are weak. Retaliation, trade war risk, and global spillovers (Priority: 5/5): Clausing warns that foreign retaliation could trigger an escalating cycle of tariffs similar to the 1930s, creating worldwide stagflation, lower productivity, and reduced growth as countries cut off trade and raise prices. Inflation and pass-through to consumers (Priority: 5/5): The episode disputes the idea that tariffs would have limited inflationary impact. Clausing argues the scale is much larger than in Trump’s first term, foreign producers cannot absorb enough of the cost, and U.S. buyers would bear most of the burden. Exchange rates and why they won’t offset tariffs (Priority: 4/5): The conversation explores whether a stronger dollar could offset tariff costs. Clausing says exchange rates are unpredictable, many imports are priced in dollars, and other Trump policies could actually weaken the dollar, so consumers should not count on relief. Trade deficits, industrial policy, and China (Priority: 4/5): Clausing rejects the claim that tariffs will solve the U.S. trade deficit, arguing deficits stem mainly from low U.S. savings and fiscal imbalance. She says unilateral pressure on China has not worked and that policy goals should be targeted directly rather than through broad tariffs. Distributional politics and who benefits (Priority: 4/5): The episode closes by arguing that the nationalist tariff agenda is not a worker-friendly correction to corporate globalization, but a regressive policy that raises costs for households. Clausing says if the goal is to tax corporations, there are more direct tools than tariffs.

Key Arguments: Trump’s proposed tariffs are far larger in scope than his first-term measures, so past claims that inflation was limited do not generalize to this plan. The executive branch has multiple legal authorities to impose tariffs, and Congress could also legislate them, so implementation is plausible. If trading partners retaliate, tariffs could spiral into a global trade war, damaging growth and raising prices worldwide. U.S. consumers would likely bear much of the cost because importers and firms have limited room to absorb a 10-20% or higher tariff shock. Exchange-rate appreciation is an unreliable offset because FX movements are hard to predict, often slow to affect dollar-priced imports, and could be outweighed by other macro forces. Tariffs do not solve the trade deficit because the deficit is driven mainly by U.S. fiscal and savings imbalances, not just foreign trade barriers. Broad tariffs are a blunt and inefficient way to respond to Chinese industrial policy or national-security concerns; targeted measures would be more coherent. If policymakers want to reduce corporate power or raise revenue, corporate tax reform and transfers like the EITC are more direct and less regressive than tariffs.

Data Points: Trump first-term trade-policy damage rating: 6/10 - Clausing’s assessment of the economic harm from Trump’s first-term international economic policies Trump second-term tariff-policy damage rating: 8/10 - Clausing’s rating of the tariffs alone in a second term Combined damage rating with other Trump policies: 9.5/10 - Clausing’s estimate when tariffs are paired with deportation, fiscal, and Fed-independence risks Proposed baseline tariff: At least 10% on all U.S. trading partners - Described as one of Trump’s campaign promises Proposed China tariff: 60% on imports from China - Described as one of Trump’s campaign promises Trump first-term tariff increase: About 20 percentage points - Increase applied in 2018-2019 to selected Chinese products Scale of first-term tariff base: About $300 billion - Value of Chinese goods affected by Trump’s first-term tariffs Potential tariff rate discussed publicly: Up to 50% across the board - Trump’s remarks in a conversation with the Economic Club of Chicago, as cited in the interview Current U.S. goods imports: About $3.1 trillion - Used to illustrate how much larger a universal tariff regime would be Estimated household cost: About $2,600 - Mary Lovely and Clausing estimate of higher costs for a typical household from import tariffs alone U.S. share of world goods imports: About 13% - Used to argue foreign exporters have limited incentive to cut prices much Non-U.S. share of world goods imports: About 87% - Used to explain why foreign producers can sell elsewhere rather than fully absorb tariff costs Projected U.S. budget deficit: Exceeding 6% of GDP for each of the next 10 years - Presented as a key driver of the U.S. trade deficit and external borrowing

Pivotal Quotes: "I think all by themselves, I might give them an eight. But when you couple them with the deportation and the fiscal policy changes and the challenges to Fed independence, I would give it more like a 9.5." — Kimberly Clausing: Assessing the potential economic damage of a second Trump term "I think what keeps a lot of economists up at night when contemplating this scenario is that it could easily lead to a spiral." — Kimberly Clausing: Warning that retaliatory tariffs could trigger a trade war and global stagflation "If you wanted to help workers, you would tax companies more and you would expand the earned income tax credit, you'd expand the child tax credit, you'd actually be cutting taxes lower in the income distribution, not raising them through tariffs." — Kimberly Clausing: Arguing that tariffs are a regressive substitute for more direct pro-worker policies

Implications: Listeners should expect broad tariffs to raise prices, distort supply chains, and invite retaliation rather than fix trade deficits or boost workers. The episode frames tariffs as a risky, regressive policy with global stagflation potential and little evidence of net benefit.