Trump’s Trade Policies Would Make America Recession-Bound Again

Apr 01, 2016 - 10:00am

Executive Director, Strategic Communications

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Donald Trump

Republican frontrunner Donald Trump has promised to “make American great again.” He has built his campaign on the notion that our country doesn’t “win” anymore, and that under his administration and his trade policies, the United States would finally start “winning” in the international arena again. The path to all that winning starts, he says, by building a big wall and creating big trade barriers.

Does a recession sound “great” to you? Do 7 million lost jobs sound like “winning?” No, probably not. And yet, that’s exactly where our country would be headed under Trump’s trade policies, according to an analysis released last week. Here are the details, via The Washington Post:

An economic model of Trump's proposals, prepared by Moody's Analytics at the request of The Washington Post, suggests Trump is half-right about his plans. They would, in fact, sock it to China and Mexico. Both would fall into recession, the model suggests, if Trump levied his proposed tariffs and those countries retaliated with tariffs of their own.

Unfortunately, the United States would fall into recession, too. Up to 4 million American workers would lose their jobs. Another 3 million jobs would not be created that otherwise would have been, had the country not fallen into a trade-induced downturn.

The U.S. recession would set in within the first year under Trump’s proposed trade policies, which include a 35 percent tariff on imports from Mexico and a 45 percent tax on goods coming in from China. Over the next three years, the U.S. economy would shrink by 4.6 percent and the unemployment rate would nearly double to 9.5 percent.

Should China and Mexico decide not to retaliate against Trump’s steep tariffs with heightened trade barriers of their own - an unlikely scenario based on recent history - the U.S. would still lose a minimum of 2 million current jobs, while another 1.5 million would not be created. In other words, even under the best case scenario, Trump’s tariffs would strip our country of at least 3.5 million jobs.

And that’s only the start of the ripple effects. In the long term, the impacts wouldn’t be limited to job losses, nor would they be limited to repercussions for the U.S., Mexico and China, the Post reports:

What results, in the model, is a downward spiral of reduced economic activity. Prices rise on imported goods from China and Mexico, which has the effect of reducing spending power for American consumers. If China and Mexico retaliate, U.S. exports fall, forcing layoffs at American companies that sell to those foreign customers. The ensuring growth slowdowns spread to other trading partners, particularly in Europe, and cause stock markets to plunge, which in turn slows growth even more.

For those keeping track, under Trump’s trade plans, we would see higher prices, reduced spending power, fewer jobs, and a weaker economy, both here at home and abroad, according to the analysis. Of course, that’s the last thing our country and the global economy need right now.

Though Trump has previously hinted that his threats may represent more of a negotiating tactic than an actual trade policy, his continued insistence on steep tariffs walks a dangerous line, particularly when we consider that the nations he most frequently singles out – China, Mexico and Japan – represent more than $400 billion in combined export markets for American businesses.

 

With that in mind, we should be looking for ways to expand trade through pending agreements like the Trans-Pacific Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP), which would support millions of additional jobs for American workers and drive down the price of goods and services for American consumers. While the agreement would lead to some job churn in the U.S., the ultimate result will be better, higher-paying jobs for Americans and a much-needed jolt for our economy. It will be up to the government and business community to help ensure that any worker displaced by trade gets the training he or she needs to transition into one of those better-paying, 21st-century jobs. ​

Unfortunately, every remaining presidential candidate seems to be ignoring the wealth of data linking effective, enforceable trade agreements like TPP to those economic benefits, as nearly every one of them has come out against this promising agreement with our partners across the Pacific.

Moving forward, our country and its leaders should be looking for more ways to help U.S. businesses access the billions of customers who live beyond our borders. In other words, we should be tearing down trade barriers, not putting up more in place. 

That is, unless a “downward spiral of reduced economic activity” sounds like your idea of winning.

About the Author

About the Author

J.D. Harrison
Executive Director, Strategic Communications

J.D. Harrison is the Executive Director for Strategic Communications at the U.S. Chamber of Commerce.