Edward Lotterman

As the 2024 presidential race nears and narrows, questions increasingly arise. What economic policies would a second-term Donald Trump follow? What about Joe Biden?

Immigration is likely to be a key issue. That is largely but not entirely an economic issue, but also a complex one that deserves treatment alone. After that, inflation is a key issue for many voters even though the annualized rate for the last three months, 3.8%, is below the average for the last four years of the Reagan administration in the 1980s or the eight of Bill Clinton in the 1990s.

Inflation is tied to the Federal Reserve, of which Biden would likely keep hands off. But what a second Trump administration would do there based on his actions in his previous term also deserves separate treatment.

Inflation also is tied to trade policy, and this is what we’ll focus on. Our nation imports large quantities of consumer goods as well as other finished goods and raw materials. Values of imports exceed those of exports — as they have for most of the last four decades.

So what would Trump or Biden do about trade? Trump promises to raise taxes on imports. Biden says little and it is safe to assume that, as with many other issues, he would “stay the course” set in his first term.

A recent episode of The Bulwark Podcast, the opinion series started by well-known conservative pundit Charlie Sykes, is good background for those interested in trade issues.

Republican Tim Miller, who worked as a campaign staffer for late senator John McCain, former governor and current Sen. Mitt Romney and former Govs. Jon Huntsman and Jeb Bush, now runs the podcast. He is an intellectual conservative who might come close to our former Gov. Tim Pawlenty on practical issues. And he is an impassioned anti-Trumper.

The episode in question, “Another Trump Economy is a TERRIBLE IDEA,” was posted earlier this week. In it, Miller queries Catherine Rampell, economics writer for the Washington Post, about Trump’s ideas for trade, immigration and the Fed.

Rampell is one of the sharpest young commentators on economic issues and the best informed on recent economic scholarship. She has a BA in anthropology from Princeton but also did graduate work there in economics, much with Alan Krueger, a brilliant scholar who, if he had not taken his own life, would have been included in the 2021 Nobel award with his collaborator David Card. Politically, she probably would align with our Sen. Amy Klobuchar and certainly is more conservative than Sens. Elizabeth Warren or Bernie Sanders.

An unfair starting point, one may say, if I’m basing a discussion on Trump trade policies on an exchange between two pundits who oppose Trump. True. But it is exceedingly hard to find any noted economist who supports Trump, especially on trade. Moreover, even if you disagree with both the Democrat and the Republican, listen to what they say on trade.

Neither candidate nor party has published a detailed platform or policy statement on trade for the fall elections. But Trump has called for higher tariffs, including a 10% tax on all imports, except for those from China which would be subject to 60%. Again, Biden’s trade stance apparently would be to continue current policies, including the tariff increases instituted by Trump in his first term that Biden chose not to reverse.

Much uncertainty stems from whether Trump really means “everything” would be taxed. Would imports of crude and refined petroleum be taxed? This would foster drilling of higher-cost wells in our country and increase production, but would also push up gas prices. It is something never done before.

Moreover, after 70 years of seamless integration of the auto industries of the U.S. with Canada, would the billions in vehicles and components that pass back and forth be taxed at 10%? Ditto for cars assembled in Mexico in plants constructed expecting NAFTA would remain in force.

What about foods largely imported from the tropics like coffee and cocoa or year-round fresh fruits and vegetables including green beans and asparagus that come from Mexico, Chile, Peru and South Africa, among others? Biden has learned painfully how touchy voters are about grocery prices. Would Trump dare to willingly spike prices of many popular foods to which we are now accustomed?

The two pundits in the podcast agree that Trump’s proposed tariffs, particularly 60% on Chinese goods, would be highly inflationary. Yes, they would be, especially in the short run before counter-adjustments from building new production capacity here or increasing domestic output of substitute products.

They fail to note that, according to Milton Friedman, a central bank such as the Fed could prevent increases in increased prices of imported goods from causing an increase in the general price level if it were willing to tighten the money supply enough to force down spending on other items not subject to tariffs. In other words, yes, sudden imposition of tariffs would touch off marked inflation unless the Fed chose to cause a sharp recession. But also there is the factor of consumer choice — would people voluntarily choose to buy lower-cost domestic produce over the imported bananas and avocados we take for granted in our stores?

The pundits also fail to notice that higher tariffs would raise tax revenues. All else being equal, this would reduce the budget deficit. But an inflation that in effect is a major tax on consumer goods would be highly regressive — it would hit lower-income households far harsher than wealthy ones.

Nor do the two discuss the effects of other nations responding to our tariff increases with retaliatory increases of their own. U.S. export sectors would be flogged, especially agriculture and manufacturing. One can imagine shipping container-sized lots of champagne on ice at the headquarters of Airbus and Embraer, Komatsu and Liebherr and in the offices of Brazilian, Argentine, Australian, South African and other nations’ farmers’ associations, waiting for the moment Donald Trump shackled U.S. exporters by taxing imports.

The economic and foreign policy ramifications of a global trade war mimicking that in the early 1930s following U.S. adoption of the 1930 Smoot-Hawley tariff are a subject in themselves, but one that concerned citizens should study.

Congress is dysfunctional and the House often near paralyzed, so citizens may wonder if a president like Trump can simply impose tariffs unilaterally. The answer is that no, under our Constitution and long history of laws, raising tariffs would need to be approved by both houses of Congress.

Tariffs are taxes, and the U.S. Constitution not only requires that only Congress can increase taxes but that any tax bill must originate in the more egalitarian House. Any student of U.S. history knows that fights over tariff levels were probably the Congress’ most contentious issue, except for slavery, until at least the 1930s.

The Reciprocal Tariffs Act of 1934 recognized that Smoot Hawley had caused tremendous damage not just to our own economy but around the globe. It gave the president authority to lower tariffs on imports as long as other nations agreed to also. The Democratic administration of Franklin Roosevelt initiated the bill but it passed with bi-partisan support although the GOP remained the party favoring high tariffs.

The 1934 act remains our basic trade legislation but with many amendments including major ones in 1974 and 1979. These, at the insistence of Democrats, then still influenced by labor unions, added Section 201, Section 301 and “Super 301” giving the president unilateral power to increase tariffs to oppose “unfair” trade practices of other nations. These are the loopholes used sparingly by most past presidents, but ones through which Trump drove trucks. The reality is that unless Congress specifically acts to overturn an executive order or some affected party succeeds in challenging presidentially decreed tariffs, a president can do whatever he gets away with.

So if Biden is elected, expect little change in trade policy. If Trump is the winner, trade will be the center of an economic maelstrom affecting all households and all trade-related businesses, including agriculture and many others important in Minnesota.

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St. Paul economist and writer Edward Lotterman can be reached at stpaul@edlotterman.com.