"Trump Team Is Pivoting to No Pain, No Gain as Economic Message"

The Trump administration's latest pivot to a "no pain, no gain" economic strategy is a bold move that could have far-reaching consequences for the US economy. The recent imposition of tariffs on a wide range of products and countries, including China, Canada, Mexico, and the European Union, is a clear indication of the administration's commitment to protecting domestic industries and reducing trade deficits. However, the economic repercussions of these tariffs could be significant, and the long-term effects on the US economy remain uncertain.

The administration's tariff policies are a continuation of the trade war that began in 2018, when President Trump imposed tariffs on thousands of products valued at approximately $380 billion. The Biden administration kept most of these tariffs in place, and in May 2024, announced tariff hikes on an additional $18 billion of Chinese goods, including semiconductors and electric vehicles. The Trump administration's latest tariffs, which include a 20 percent tariff on all imports from China and a 25 percent tariff on all imports from Mexico and Canada, are a significant escalation of this trade war.

The economic effects of these tariffs are already being felt. The 2018-2019 trade war tariffs imposed by Trump and retained by Biden are estimated to reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs. Academic and governmental studies have found that these tariffs have raised prices and reduced output and employment, producing a net negative impact on the US economy.

The Trump administration's latest tariffs are likely to exacerbate these negative effects. The proposed tariffs on Canada and Mexico, which are scheduled to take effect on March 4, 2025, and the increase in tariffs on China to 20 percent, are expected to further reduce long-run GDP and employment. The tariffs on Canada and Mexico are estimated to reduce long-run GDP by 0.3 percent, while the proposed tariffs on motor vehicles and motor vehicle parts are estimated to reduce long-run GDP by 0.1 percent—before accounting for foreign retaliation.

The retaliatory measures taken by China and other countries in response to the new tariffs could also have significant economic repercussions. China, for instance, has announced retaliation on about $13.9 billion worth of US exports at rates of 10 percent and 15 percent, which took effect on February 10, 2025. This retaliation could lead to a reduction in US exports to China, potentially affecting US industries that rely on the Chinese market. For example, sectors such as agriculture, technology, and manufacturing could face reduced demand and increased costs due to the tariffs, which could in turn lead to job losses and decreased economic output.

The proposed tariffs on specific products such as steel, aluminum, autos, semiconductors, and pharmaceuticals align with the broader economic strategy of the Trump administration, which focuses on protecting domestic industries and reducing trade deficits. The administration has used various tariffs and trade policies to achieve these goals. For instance, President Trump signed two proclamations on February 10, 2025, to expand the existing Section 232 tariffs on steel and aluminum. These orders end all existing exemptions for the tariffs, expand the list of derivative articles, and raise the tariff rate on aluminum from 10 percent to 25 percent. The changes are scheduled to take effect March 12, 2025. This move is aimed at bolstering the domestic steel and aluminum industries by making imports more expensive and less competitive.

Similarly, President Trump announced on February 14, 2025, that he plans to impose tariffs on auto imports beginning on April 2, 2025. He specified that the rate on autos would be “in the neighborhood of 25 percent” while the rates on semiconductors and pharmaceuticals would be “25 percent and higher.” These tariffs are intended to protect the domestic automotive industry from foreign competition and encourage the production of these goods within the United States.

The expected short-term effects of these tariffs include increased prices for consumers and businesses that rely on these imported goods. For example, the proposed tariffs on motor vehicles and motor vehicle parts are estimated to reduce long-run GDP by 0.1 percent—before accounting for foreign retaliation. This suggests that the immediate impact could be more severe, as foreign countries may retaliate with their own tariffs, further disrupting global supply chains and increasing costs for American consumers and businesses.

In the long term, the tariffs could lead to a shift in production towards domestic industries, potentially increasing employment and investment in these sectors. However, academic and governmental studies find that the Trump-Biden tariffs have raised prices and reduced output and employment, producing a net negative impact on the US economy. This indicates that while the tariffs may provide short-term benefits to certain industries, the overall economic impact is likely to be negative.

For instance, the 2018-2019 trade war tariffs imposed by Trump and retained by Biden are estimated to reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs. This historical data suggests that the current round of tariffs could have similar long-term effects, potentially leading to a reduction in economic growth and employment.

The Trump administration's latest pivot to a "no pain, no gain" economic strategy is a bold move that could have far-reaching consequences for the US economy. The recent imposition of tariffs on a wide range of products and countries is a clear indication of the administration's commitment to protecting domestic industries and reducing trade deficits. However, the economic repercussions of these tariffs could be significant, and the long-term effects on the US economy remain uncertain. The administration must carefully consider the potential consequences of its tariff policies and work to mitigate the negative effects on the US economy.