PIIE experts react to Trump’s tariffs announced April 2

President Donald Trump rolled out a new Executive Order Wednesday imposing tariffs of 10 percent or higher on all US trading partners. Here is a sample of PIIE experts’ initial reactions, lightly edited for space and clarity.

Adam S. Posen, president, PIIE: This will not generate a fraction of the rise in employment in US manufacturing that the administration claims. In fact, it will reduce US companies' share of global auto sales. The uncertainty hanging over corporate investment will remain, given the nature of the open-ended tariff threats and the manner in which they are decided. So, US recession risk is going up, but expect inflation either way growth goes, up or down.

These measures could provoke retaliatory tariffs. The more retaliation, in pure economic terms, the more harm to everyone, with the retaliating countries suffering more than the US from the knock-on effects, though both will suffer. In a few specific situations it might lead to the Trump administration backing off. If the Trump administration puts on across-the-board tariffs or legislates sectoral tariffs, though, retaliation may not be effective. Significant shifts in global supply chains as a response to these tariffs are under way but will not become visible until at least several months pass. Over the next 1-3 years, if the tariffs or threats of tariffs persist, these will become very large and obvious going around the US.

Marcus Noland, executive vice president and director of studies, PIIE: These are unilateral, arbitrary tariffs, imposed with no regard to WTO or free trade agreements, and scarcely any reference to US law. These tariffs are regressive, tilted toward low-income countries from which we source clothes and footwear, and will have a profoundly regressive impact on the US. They will contribute to slower growth, higher prices, and greater unemployment. 

Olivier Blanchard, senior fellow, PIIE (posted on X): Running bilateral trade surplus[es]/deficits with different countries is the way it should be. Trying to eliminate each one is simply stupid. I have a trade deficit with my grocer, a trade surplus with my employer. I am not sure it would be a great idea for me to work for my grocer. (Even if the loss for the economics profession was minimal, I am not very good at packing groceries.)

Same thing with countries. There are reasons why we sell more to one, buy more from another. Different tariff rates across countries imply reshuffling of deficits and surpluses across countries, but no obvious change in the overall trade deficit.

To go back to the economist’s mantra (and the power of identities): If you want to reduce the overall trade deficit, increase saving (you might consider decreasing the budget deficit?) or decrease investment.

Monica de Bolle, senior fellow, PIIE: From an economic perspective, the tariffs make no sense and will have many consequences for the global economy. From a political and geopolitical perspective, tariffs are being used as instruments of coercion towards domestic and foreign entities (corporations, governments). Hence, it is not unlike what we have witnessed in the past during waves of economic nationalism. Our new book, The New Economic Nationalism, catalogs these experiences and shows that when applied purely for political interests, protectionist measures tend to backfire both for the country adopting them and those affected by them. 

Kimberly Clausing, nonresident senior fellow, PIIE; Eric M. Zolt Chair in Tax Law and Policy, University of California, Los Angeles: These tariffs lack any principled rationale, and they risk economic catastrophe. The largest tax increase in more than fifty years will burden US consumers, generating thousands of dollars in tax increases for the median household. Retaliation and the tariffs on intermediate goods (a majority of US imports) will harm US investment, production, and growth. Trump may wager that tariffs will return us to a better economic time but, in reality, they will leave behind only broken partnerships and economic devastation.

Joseph E. Gagnon, senior fellow, PIIE: The assertion that trade deficits are caused by foreign trade barriers has no theoretical or empirical support. If it were true, countries with high barriers to imports would have trade surpluses but in fact they tend to have trade deficits.

Global stock prices are down sharply and bond yields down moderately, signaling growing fears of recession. The fact that the dollar fell rather than rose suggests that recession fears are especially strong for the US and/or investors are worried about future economic policies in the US.

Cullen S. Hendrix, senior fellow, PIIE: That distant rhythm you hear? It's the drums of a brewing, US-sparked trade war—and a war of choice at that. There’s little evidence that tariffs will improve the US trade balance. Meanwhile, there’s a mountain of evidence that they put at risk the 15 to 20 million American workers in export-oriented industries, while driving up prices for consumers across the board.

Robert Z. Lawrence, nonresident senior fellow, PIIE; Albert L. Williams Professor of Trade and Investment, Harvard Kennedy School: By doing their calculations using balanced bilateral trade as the standard for reciprocity, and claiming it reflects differences in market access and other policies, the CEA [Council of Economic Advisers] and Trump are both misleading the public and displaying their ignorance of one of the most basic features of countries that use money instead of barter when they trade.

Mary E. Lovely, Anthony M. Solomon Senior Fellow, PIIE: So where will the US be buying its apparel now that the tariff rates on Bangladesh, Vietnam, and China are astronomical? Latin America looks good—some nice locations with only 10 percent tariffs...but do they have the capacity?

Will the new "Golden Age" involve knitting our own knickers as well as snapping together our cell phones? Will Americans earn a wage high enough to afford to buy their own output?

Why are we retaliating against unseen dragons when we need a real industrial strategy for creating sustainable jobs with living wages and health benefits? The tax burden is being shifted onto the backs of the working men and women these new tariffs purport to help. Today's announced tariffs are a sad U-turn away from a better future.

Maurice Obstfeld, C. Fred Bergsten Senior Fellow, PIIE; Class of 1958 Professor of Economics emeritus, University of California, Berkeley: These measures amount to a sizable effective tariff rate, in many cases directed at close geopolitical allies. They will raise US prices, damage the US economy, and damage economies abroad, while doing little to improve the US foreign trade balance—unless they dramatically slow US growth. What calculations justify these numbers is still unclear—the USTR Trade Barriers report that President Trump brandished does not tell us. The president effectively declared war on the world economy today [April 2]. Retaliation can be expected, reinforcing the carnage.

Also, because the tariffs are variable, consumers can shift to purchasing products from countries with lower tariff rates, and companies in higher-tariffed countries can reroute or invest in the lower-tariffed countries to get their products to the US. The US trade deficit with the lower-tariffed countries would actually grow. It’s like Whack-A-Mole.