August 7, 2019 at 5:00 am ET
Who can take a tariff, sprinkle it in dew, cover it in chocolate and a miracle or two? The “Tariff Man” can. On Aug. 1, President Donald Trump announced he would impose yet another round of tariffs on imports from China, this time taxing approximately $300 billion worth of goods at 10 percent.
Last week’s announcement follows a brief lull in tariffs, since Trump backed off his early summer threats. At the time, he increased tariffs on $200 billion worth of goods from China, threatened to slap tariffs on all remaining imports from the country, and then added in a threat of tariffs as high as 25 percent on Mexico for good measure. While the markets have experienced brief selloffs, and some of the president’s aides have expressed trepidation, Trump has stayed the course, sprinkled some money to key supporters in farm country, and not seen a hit to his popularity.
There are a lot of theories about why Trump has such a penchant for tariffs, but perhaps the most overlooked reason is that they have worked for him — at least so far. He has used them to change the subject when the cable networks are sharing wall-to-wall coverage of his latest scandal and to pump up his support among blue-collar workers in the Rust Belt when he wants to show his connection to them.
Most importantly, Trump has found that tariffs work to achieve his aims and they have not caused the catastrophic market failure so many economists have predicted. When Trump threatened auto tariffs last summer, the EU and Japan came to the table for the first time to begin talks on formal trade agreements. Soon after, Mexico and Canada agreed to a new version of the North American Free Trade Agreement.
Trump’s rescinded threat to impose tariffs on all imports from Mexico was even more successful. Top officials from Mexico flew into Washington, D.C. the very next day to begin working on a solution that could appease the president. Within a week, he was able to declare victory on a deal that, even if it does not answer all of his concerns, at least burnishes his image as a dealmaker.
Throughout it all, major stock indices have experienced some blips, but nothing so sustained that Trump hasn’t been able to overcome it with a bit of goading of the Fed, and the economy is still enjoying the longest sustained run in U.S. history. It’s enough to make Gary Cohn look like Chicken Little declaring the sky is falling over his decision to quit his role as Trump’s top economic advisor over a mere 25 percent tariff on steel.
If Trump does run into trouble, he has learned he can just pull back a bit and the amnesic market will recover quickly. During the only significant and sustained market drop of his administration last November and December, Trump reached his short-lived truce with China’s President Xi Jinping. By May the stock market had recovered.
Trump’s most recent round of tariffs may not convince China to take a deal, but the economic blip will almost certainly push Federal Reserve Chair Jerome Powell to embark on a policy of monetary easing. The president has already seen that the hope of a Fed rate cut can be enough to keep the equities market buoyed through tariffs, and he is looking for more room to run.
Now we see that Trump has learned that he can take a tariff, dip it in a dream, separate the sorrow and collect up all the cream. At some point (and it may be soon), the music will stop and the song will end. What happens to his legacy of tariffs then?
Rachel Pierson is head of research and lead trade policy analyst at Beacon Policy Advisors LLC, an independent policy firm based in Washington, D.C.
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