Trade War

Though the tax breaks from the Trump Administration’s 2017 Tax Cuts & Jobs Act stimulated job growth and put more money back into the wallets of taxpaying Americans, the President’s ongoing trade war is threatening the very economic improvements his tax overhaul brought about.

Since the end of the Great Recession in 2009, the economy has been growing at a steady rate of 2.2 percent each year. With the implementation of President Trump’s tax breaks, this growth nearly doubled to 4.2 percent growth in the second quarter, which lowered unemployment rates to a record 3.7 percent – the lowest rate in 49 years.

These tax cuts overall equated to saving the average American citizen about $930 per year. However, according to research from the Federal Reserve, the tariffs that have been implemented thus far are already costing these same citizens around $831 in additional costs, which leaves a meager $100 in benefits. These additional costs are hidden and stemming from the higher prices of products affected by the trade war.

Tariff Effects

This subsequent cost does not even include the $300 billion in tariffs on Chinese products to be potentially implemented in the near future. It could be safely assumed that this next round of tariffs would completely wipe out any economic gains the average American saw from the tax break.

Those most severely impacted by the tariffs are the American farmers, some of President Trump’s most loyal supporters. And it is the American taxpayer footing the multi-billion dollar relief package that USDA and the White House have put forward to assist farmers hurt by the tariffs.

The Trump administration aims to make these short-term sacrifices by reaching a deal with China that will shrink the trade deficit it has with the United States. President Trump has consistently used the trade deficit as a talking point to symbolize the United States’ decline as a manufacturing powerhouse. In 2017, US imports fell to China with a trade deficit of $419.2 billion with China importing a total of $120.3 billion and the US importing a whopping $539.5 billion.

US Exports to China

Just how much of the trade war will the US economy be able to stand before a deal can be reached?

According to one Morgan Stanley analyst, if President Trump goes through with his proposed 25% tariffs on $300 billion of imports from China, it has the potential to tip the global economy into a recession. In turn, of the 1.3 million new jobs that President Trump created with his tax benefits, President Trump’s tariffs have the potential to result in the loss of almost 610,000 full-time jobs, according to the Tax Foundation.

With the President utilizing trade tools like threats of tariffs or quotas in dealing not only with perceived economic inequities between the U.S. and other countries but also policy differences like immigration it appears that we are in the world of trade actions for some time. But If President Trump manages to get the USMCA through Congress and finalize a trade deal with China, he will be able to boast of his success in an area that he has been promising to improve ever since the start of his campaign back in 2015. But, if the trade war continues for too long, he risks cancelling out a large portion of the benefits he previously secured for the American people.

Bio Link Denise co-leads the federal practice at Michael Best Strategies with expertise in association and coalition management as well as development of public policy strategies, at both the state and federal level. She was active, on behalf of firm clients, during the recent federal tax reform debate, much as she was during the last major tax reform in 1986. Expertise: Regulatory Law, Tax & Trade, Energy, Environmental, Food, Agriculture, and Telecommunications