U.S. trade policy and tariffs under the Trump administration

Implementation of metal tariffs, dispute between the U.S. and China, and NAFTA negotiations

2018/09/21

Summary

 Throughout the 2016 presidential campaign and the time prior to his inauguration, Donald Trump proposed various tariffs targeted primarily towards China and Mexico. For example, in his presidential announcement speech, Trump recommended the idea of a 35% tariff on both vehicles and automotive parts imported from Mexico. In an interview with the New York Times, Trump supported the idea of a 45% tariff on all goods imported from China. Trump suggested that tariffs would reduce the U.S. trade deficit, strengthen its domestic industries, and increase the number of jobs.

 In 2018, President Trump followed through on his previous proposals and began imposing tariffs on various goods. Notably, he was able to do so as the president has gradually gained the power to impose tariffs through various trade acts. The tariffs have led to retaliatory actions from a number of affected countries, including Canada, Mexico and China. In particular, the U.S. and China are engaged in a trade dispute with both sides locked in a cycle of issuing tariffs of increasing amounts, generating concern across the world of a global trade war.

 Both the implementation and threat of potential tariffs have affected the U.S. economy and the automotive industry. Automakers and suppliers have revised their full-year outlooks. In the short-term, companies are expected to bear the cost of the tariffs. However, the costs will eventually be passed down to consumers if the tariffs are sustained. Based on an analysis from the Peterson Institute on International Economics, a 25% automotive tariff would cause U.S. automotive and component production to decrease by 1.5% and employment in those areas to drop by 1.9%.

 In addition, the Trump administration is currently in the process of NAFTA revisions with Canada and Mexico. Negotiations have led to a preliminary bilateral agreement between the U.S. and Mexico which aims to increase the amount of vehicle content produced in the two countries, while also instituting a required percentage of content produced from high-wage countries. The primary purpose of these changes as related to the automotive industry is to shift automotive production to the U.S.

 This report provides an overview of the current state of affairs regarding U.S. trade policy and tariffs during the Trump administration, as well as their effects. The report also summarizes the present standing of the NAFTA revisions between the U.S., Mexico and Canada.

 

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