Even his “reciprocal” tariffs on all imports could be replaced by Section 232 versions, should the US Supreme Court uphold lower court judgements that they are illegal, although (a) the Supreme Court has a recent history of giving the administration what it asks for and (b) it would be far more time-consuming to use the section, which requires a particular and detailed investigatory process, and the administration would have to refund billions of dollars of tariff revenue in the meantime.
Citing national security threats as a pretext for hitting imports of kitchen cabinets or furniture with his tariffs is clearly an artifice to enable Trump to build a wall against, it seems, almost all manufactured imports and the raw or semi-finished components to make them.
It’s also a way of maximising revenue for a government that is awash in deficits and debt.
Next up in Trump’s war on the world: the kitchen. Credit: istock
Last year the US raised $US90 billion ($137.4 billion) from customs and excise duties. Recently, that revenue has been running at close to $US30 billion a month and it will keep rising as the most recently added tariffs (the reciprocal tariffs went live only last month) start to contribute.
Most estimates of the tariffs are that they will generate around $US2.5 trillion over a decade, if they remain in place over that period.
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They are of course, a particularly regressive tax on American consumers – they are paid for either by the US importer or are passed onto consumers via higher prices, with lower-income households hit hardest – despite Trump’s continued assertions that foreign countries are paying them.
The Yale Budget Lab says they will cost the equivalent of an average annual per-household loss of income of $US2400 in 2025 dollars, will lower US gross domestic product growth by 0.4 percentage points in the long run and increase the unemployment rate by 0.7 percentage points next year.
They will also affect the US inflation rate, indeed they are already affecting it.
The US Federal Reserve Board’s preferred measure of inflation is the core personal consumption expenditures index.
On Friday the index, excluding volatile food and energy prices, showed a 0.3 percentage point increase in August relative to July. In July, the index rose 0.2 percentage points from June. The index is 2.9 per cent ahead of the same month last year.
He’s also foreshadowed national security tariffs on robotics, industrial machinery, semiconductors and medical devices and no doubt will come up with some other products deemed critical to America’s security.
In other words, prices and inflation are ticking up even before the full impact of the main tariffs – the baseline and reciprocal tariffs on the rest of the world – is felt.
That’s despite the fact that most of the tariffs’ costs have, so far, been absorbed in the margins of US businesses rather than passed onto consumers.
Many businesses also boosted their imports at pre-tariff prices significantly ahead of the well-flagged introduction of the main tariffs, allowing them to maintain pre-tariff pricing until their inventories have been depleted. There’s no evidence that exporters to the US have lowered their prices to absorb any material proportion of the tariffs’ costs.
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Companies also wouldn’t want to raise prices and lose sales while there is a possibility the Supreme Court will deem the tariffs illegal and force the revenue to be returned to importers. The full effects of the existing tariffs won’t be seen for months and, with Trump regularly adding to the list of affected products, perhaps well into next year.
While the impact on prices and inflation has been relatively muted to date, within the revised data released by the Commerce Department last week that showed robust 3.8 per cent growth in real GDP in the June quarter (after negative growth in the first quarter), business spending fell by an annualised 5.6 per cent in real terms.
Business spending is being chilled by the uncertainties generated by Trump’s trade wars and immigration policies.
With wage growth relatively flat, the overall growth in the economy appears to have been powered by consumption funded by households drawing on their savings, perhaps to get in ahead of the tariffs. That’s not sustainable.
The US has only days to avert another threat to growth, the shutting down of the US government if congressional Republicans and Democrats can’t find a short-term compromise before the government’s funding runs out on Wednesday, the start of America’s new financial year.
Trump, who had refused a request from Democrat leaders for a meeting, has changed his mind and will now discuss a short-term spending bill with them.
US Federal Reserve chair Jerome Powell. It’s a thankless task being a central banker in Trump’s America.Credit: Bloomberg
The Democrats, while saying they want to avoid a shutdown, are insisting on an extension of healthcare subsidies and the restoration of cuts to healthcare spending in the administration’s One Big Beautiful Bill Act, while Republicans want an extension of the funding before they will negotiate (if they will negotiate).
If the shutdown goes ahead, Trump has threatened mass firings of government employees (on top of the 200,000 or so already fired earlier this year) rather than the usual furloughs without pay for non-essential employees during previous shutdowns.
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That would add to the rising rate of unemployment in the US, even as the inflation rate also keeps edging up, adding to the pressure on the already beleaguered Federal Reserve, which is trying to balance the risks to US jobs and prices while fighting off Trump’s attempt to gain control of its board. It’s a thankless task being a central banker in Trump’s America.
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