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Can Trump's tariff plan boost the US economy?
President-elect Donald Trump has made no secret of his love of tariffs, vowing steep import taxes on China, Mexico, Canada, and almost every product that crosses the US border on his first day in office. Will they boost US jobs and manufacturing, as Trump promises, or lead to rising inflation, as many economists warn? On GZERO World, Oren Cass, founder and chief economist at conservative think tank American Compass, joins Ian Bremmer for an in-depth discussion about Trump’s tariff plan and the future of US-China trade policy. Cass believes that tariffs are a way to level the playing field with China, which he says “flouts international rules and any concept of a free market.” He says tariffs can help correct global trade imbalances and doesn’t believe they’ll lead to a dramatic spike in consumer prices.
“When you raise money through a tariff, you don’t set that money on fire. It’s also tax revenue,” Cass explains, “We have a $2 trillion deficit. If I told you that there was some other tax that was going to help reduce the deficit, you’d probably say that would help reign inflation in.”
Watch full episode: The case for Trump's tariffs
GZERO World with Ian Bremmer, the award-winning weekly global affairs series, airs nationwide on US public television stations (check local listings).
New digital episodes of GZERO World are released every Monday on YouTube. Don't miss an episode: subscribe to GZERO's YouTube channel and turn on notifications (🔔).
The case for Trump's tariffs
What will President-Elect Donald Trump’s election win mean for the US economy? After years of inflation and stagnating wage growth, millions of voters elected Trump off the back of his promise to usher in a “golden age of America.” Trump has vowed to raise tariffs, slash business regulation, and deport millions of undocumented immigrants, policies he says will put Americans first. But what will that mean practically for workers and consumers? On GZERO World, Ian Bremmer is joined by Oren Cass, the founder and chief economist of the conservative think tank American Compass, who thinks Trump’s tariff plan will be a step in the right direction. Many economists argue that Trump's tariff plans will raise consumer prices and spark a global trade war, but Cass argues they're a necessary correction that will incentivize domestic manufacturing, reduce the deficit, and counter China’s unfair trade practices.
“If you actually believe that making things in America matters, then we are going to have to find a way to put a thumb on the scale for getting more of that investment back here,” Cass explains, “And I think that's what a tariff can help do.”
GZERO World with Ian Bremmer, the award-winning weekly global affairs series, airs nationwide on US public television stations (check local listings).
New digital episodes of GZERO World are released every Monday on YouTube. Don't miss an episode: subscribe to GZERO's YouTube channel and turn on notifications (🔔).
Mexican President Claudia Sheinbaum speaks after reading a letter to be sent to U.S. President-elect Donald Trump, warning that tariffs would cause inflation and job losses in both countries, at National Palace in Mexico City, Mexico, November 26, 2024.
The economic fallout of Trump’s tariff threats
Last night, Donald Trump made clear that no country will be immune to his tariff agenda. In a post on Truth Social, he accused Canada and Mexico – America’s top two trading partners – of not doing enough to curb the flow of fentanyl and illegal immigration and threatened them each with 25% tariff hikes. He also vowed to impose an additional 10% tariff on China for its role in producing the precursor chemicals for fentanyl.
The announcement caused Mexico’s peso to slide, suffering a 1.7% drop against the US dollar, and for Canada’s dollar to hit a four-year low, dropping 0.7%.
In a press conference on Tuesday, President Claudia Sheinbaum responded to Trump’s threat by arguing that tariffs would not solve the migration or drug crisis and would come at the cost of the auto industry – noting that cars from America’s biggest auto manufacturers are some of Mexico’s principal exports to the US. Auto stocks fell in response to the post – with General Motors down as much as 7% on Tuesday. Canadian Prime Minister Justin Trudeau hopped on the phone with Trump, seizing the moment to show voters he knows how to handle the incoming US president.
Meanwhile, Chinese stocks remained relatively solid – dropping just 0.2% – likely because the 10% tariff was lower than many investors’ worst expectations.
The US economy was also unphased by the news, with the Nasdaq and S&P 500 both making gains in response to Trump appointing hedge fund manager Scott Bessent as treasury secretary. Bessent is expected to be a steward of the stock market and a moderator of Trump’s wildest economic ambitions.
How likely is Trump to follow through? Eurasia Group US analyst Noah Daponte-Smith says it’s hard to predict. “What we do know,” he says, “is that Trump is serious about the tariffs and has the legal means to implement them if he wants.” Even if Trump doesn’t implement them on day one, “the threat of implementation will hang over the USMCA relationship for the entire Trump term if these underlying grievances are not addressed in the manner Trump desires.”
Europe's biggest concerns about Trump's return
Carl Bildt, former prime minister of Sweden and co-chair of the European Council on Foreign Relations, shares his perspective on European politics from Delhi, India.
Is Europe prepared for a Trump presidency?
And that's of course the big issue around every capital of Europe. There are two major issues and concerns.
One of them, obviously, the Russian war against Ukraine. What will be the US policy? Trump has promised to make peace within 24 hours. That's not going to happen. Putin is determined to continue this particular war. What would be the consequences then? Is Trump going to throw Ukraine under the bus, abandon support and thus abandon de facto concerns for the security of Europe? How would Europe react to that big issue?
Second big issue, tariffs. Trump has said that tariffs is the word that he loves most of all words. And he said that he's going to impose 10, 20% tariffs on all imports and far more on imports, of course, from China. That's going to have hugely negative effects for the global economy, also for the European economy, US economy and everyone else. What's going to be the European reaction to that? Counter tariffs or trying to line up with other global trade actors to preserve as much as we can, open up a big global trading system? Huge issues. No answer until by January 20th we know what the Trump administration is going to do. One conclusion, fairly obvious; we better buckle up.
Graphic Truth: Trump tariffs could cook Canada
It’s not yet clear how he will follow through with that threat – mainstream economists have warned of its inflationary effects – but the president-elect and top advisers, including his former trade chiefRobert Lighthizer, are working hard on it as Trump prepares to take office in January.
What effect would a blanket tariff have on Canada, whose economy is tightly integrated with the US? Brace yourself. A recent report by the Canadian Chamber of Commerce estimated that a permanent 10% US tariff on Canada would cause US imports to fall by 10%, and knock as much as 5% off of Canada’s GDP.
Here’s a look at just how dependent Canada’s economy is on the US, and the key export categories.