Will Trump start a “trade war”?

Trump, who won the US election, has publicly promised to raise tariffs on imported goods. He plans to impose a uniform 60% tariff on imports from China and 10% to 20% on imports from other countries. If this policy is implemented, it may trigger a trade war again.

Trump is expected to continue to take a tough stance on China in terms of economy, and will withdraw the tariff commitments on other member countries in the World Trade Organization (WTO) against China.

In particular, Chinese manufacturers have an advantage in price competitiveness in the field of pure electric vehicles (EV). Trump said that tariffs of 100% to 200% will be imposed on EVs imported from China, and this will include not only cars imported from China, but also Chinese-branded cars produced in Mexico.

The Biden administration has already increased the sanctions tariffs established under Section 301 of the Commerce Act at the end of September, and now imposes 100% sanctions on EVs made in China. The tariff policy against China initiated by the previous Trump administration has been continued in the current administration and is likely to be further expanded if Trump is re-elected as president.

Whether the high tariffs proposed by Trump can be achieved also depends on the support of Congress. If a 10% to 20% tariff is to be imposed on imports from various countries, it is expected that congressional approval will be required.

On the other hand, Trump is also seeking to bypass congressional procedures by exercising presidential powers (such as powers based on Section 301 of the Commerce Act or the International Emergency Economic Powers Act). Since the WTO’s dispute settlement mechanism has been suspended, Trump will not mind even if he is sued at the WTO.

If the policy of increasing tariffs is implemented, countries such as China and the European Union may take retaliatory tariff measures, triggering a trade war. When Trump was president last time, he imposed sanctions tariffs on a wide range of goods and imposed restrictions on imports of steel and aluminum products, which China retaliated against. The European Union has also imposed retaliatory tariffs on American goods such as steel and motorcycles.

The increase in tariffs may have an impact on the US economy. Since tariffs are ultimately borne by importers, they are usually passed on to domestic sales prices, which may lead to the risk of high inflation. Trump once emphasized: “If I am re-elected, German automakers will become ‘American manufacturers’.” He proposed to stop the import of foreign goods by raising tariffs and promote foreign companies to move their manufacturing bases to the United States.

Whether tariffs can be used to force corporate investment remains unpredictable. In terms of the tax system, Trump advocates lowering corporate tax rates. The plan is to reduce the current 21% tax rate to 15%, which only applies to some manufacturing industries produced in the United States. In terms of personal economic policies, the biggest issue is to make the personal income tax cut policy, which is about to expire at the end of 2025, permanent, the so-called “Trump tax cut.”