What to know about tariffs: Experts warn of harm, but some want 'pound of flesh'

The trade war launched by President Donald Trump against Canada, China and Mexico and what could end up involving countries around the world is unprecedented, national economic and legal experts say.

“Businesses no longer have any idea how to plan,” said Timothy Meyer, an international business law professor at Duke University Law School.

Before entering academia, Meyer worked as a legal adviser for the U.S. State Department. He also clerked for Supreme Court Justice Neil M. Gorsuch when Gorsuch served on the U.S. Court of Appeals for the 10th Circuit.

“I think the administration learned the wrong lesson during the first Trump term in office,” Meyer told TribLive, referencing tariffs against China on aluminum and steel, which didn’t disrupt the world economy.

Trump’s apparent takeaway, Meyer said, was that he could wage a trade war without adverse economic fallout.

When it comes to Canada and Mexico, “that’s simply not the case,” Meyer said.

“Obviously, this is quite bad for the stock market and the economy, including many of the workers that supported the Trump administration,” he said.

But what exactly are tariffs? What’s their history? When was the last trade war and who won? Are there any winners?

Ernie Tedeschi offered some answers.

He is the director of economics at the Budget Lab at Yale University in New Haven, Conn. Until March 2024, Tedeschi was the chief economist at the White House Council of Economic Advisers, an agency within the executive branch that provides the president objective economic advice. Tedeschi also worked as an economist at the U.S. Department of the Treasury.

Tariffs = taxes

Tariffs are taxes on imported goods. In the U.S., tariffs are collected by Customs and Border Patrol agents on anything valued at more than $800.

U.S. government revenue was mainly generated by tariffs before the 16th Amendment established Congress’ right to tax income in 1916.

Some economists believe tariffs were the reason the U.S. economy was able to grow as the industrial evolution transformed the world. Others posit the country’s economy grew despite the tariffs, Tedeschi said.

“Whatever historical narrative you believe, our industry right now is no longer nascent,” Tedeschi said. “We’re not in the 1800s anymore.”

Who pays tariffs?

Tariffs are generally passed on to the consumer.

In the case of the U.S., the motivation behind implementing tariffs is to encourage people to buy U.S. goods and to encourage companies to make things in this country.

“That does happen,” Tedeschi said.

But Tedeschi said it comes at a cost: increased prices and lost jobs.

In the first Trump presidency, the U.S. waged a trade war with several volleys of tariffs.

In 2018, a 30% tariff on solar panels was answered by Chinese tariffs on fruits, nuts, wine and steel pipes and a 25% tax on pork and recycled aluminum, according to a timeline compiled by the Associated Press.

That same year, the U.S. slapped a 25% tax on Chinese goods from the aerospace, machinery and medical industries worth about $50 billion. China retaliated with 25% duties on aircraft, automobiles, soybeans and chemicals, among other imports, worth about another $50 billion.

Volleys continued through President Joe Biden’s term and have intensified as Trump settles into office again.

This time, the tariffs also are targeting Canada and Mexico, countries whose economies are linked with the U.S. by shared borders and that have been considered allies for more than a century.

Canada also has close ties with Pennsylvania, as University of Pittsburgh economist Chris Briem has noted in X posts.

So let's talk about Pennsylvania's international trade with Canada. Here is just one snapshot of Pennsylvania-Canada trade that will certainly be impacted by any new historic tariffs. (via Pennsylvania DCED ref: https://t.co/hRDI79ub0I ) pic.twitter.com/fSqDRlVJn5

— ???????????????????? ???????????????????? (@chrisbriem) November 26, 2024

Briem regularly shares data he has curated from state, national and local sources, data that includes things like how there are 637 Canadian-owned companies that employ a total of more than 35,000 people in Pennsylvania.

The Keystone State imports more than $13.6 billion annually from Canada, and Pennsylvania exports $14.2 billion in commodities to Canada, according to the state Department of Community and Economic Development.

Some history

Trump has praised President William McKinley, the 25th president who served from 1897-1901. Trump has called him the “tariff king” and restored McKinley’s name to the tallest U.S. mountain, which had been renamed Denali during the Obama administration.

Trump extolled McKinley’s accomplishments during his inaugural address and said he made the U.S. rich through tariffs.

But the Gilded Age, as that era was known, ended with an economic downturn, Tedeschi said, “one of the sharpest crises before the Great Depression.”

The level of poverty and general inequality was astronomically higher then, and the U.S. was not the world economic leader. (The British Empire was still an empire.)

Fast forward about three decades. Congress passed the Smoot-Hawley Tariff, famously detailed in the 1986 film “Ferris Bueller’s Day Off.”

The Smoot-Hawley Tariff is widely thought to have spurred the Great Depression more than the 1929 stock market crash that preceded it, Tedeschi said.

After World War II, use of tariffs all but ended and the average effective tariff rate — essentially the average tax on all imports — was 1% before Trump’s first term started in 2017.

In 1850, the rate was about 25%.

Trump’s first term ended with the effective tariff rate between 2% and 2.5%.

Biden did little to reverse course. Now, with Trump back in the Oval Office, if the 20% tariffs against Chinese goods and the 25% tariffs imposed on Canadian and Mexican imports were fully implemented, the average effective tariff rate would surge to 10%, Tedeschi said.

“This is a whole other level,” he said.

Free trade?

The North Atlantic Free Trade Agreement was a treaty that governed trade among the U.S., Canada and Mexico. In 2020, it was replaced by the U.S.-Canada-Mexico Agreement, which was designed to support mutually beneficial trade leading to freer, fairer markets and to robust growth.

Both spelled out free-trade sectors so that an avocado grown in Mexico or maple syrup made in Canada isn’t taxed. The treaties also allowed the automotive industry to produce vehicles at plants spread throughout the continent.

Those agreements appear to be dead.

Trump also is threatening reciprocal tariffs on other countries. These tariffs could consider value-added taxes imposed by European countries as a trade restriction. Such taxes are 40% in Scandinavian countries. That could lead to a 40% tariff imposed by the U.S.

On Thursday, Trump threatened a 200% tariff on European wine and spirits.

The administration has promised to release a report on reciprocal tariffs on April 2.

“I really don’t even know what to expect,” Tedeschi said.

A view from W.Pa.

Rod Wilt leads Penn Northwest Development Corp., a nonprofit that promotes business and economic development in Mercer County, about 60 miles north of Pittsburgh.

It’s an area Wilt, 60, of Sugar Grove, Mercer County, represented in the General Assembly from 1996 to 2006. The region was not among the beneficiaries of NAFTA, and the Greenville area where Wilt grew up lost thousands of industrial jobs when Dallas-based Trinity Industries shuttered its Greenville Rail Car division and Trinity and the Werner Co., known for its eponymous ladders, both moved production to Mexico because of reduced labor costs.

Tariffs are a way to extract “a pound of flesh” from those taking advantage of the situation, Wilt said.

“Free trade does not work,” said Wilt, a Republican who supports Trump. “The U.S. was honest about their intentions, and all they did was get ripped off.”

Like Trump, Wilt is the scion of a prominent family. His father, Roy Wilt Sr., preceded his son as a state representative and also served in the Pennsylvania Senate. A stretch of Interstate 279 is named the Raymond E. Wilt highway for his grandfather.

“The way to level the playing field is through tariffs,” Wilt said.

As the current issues play out, Wilt has been talking with the companies that Penn Northwest serves. Some could be helped and others will be hurt by the tariffs, he said.

Even those who may suffer because of it have told him it’s “high time someone pay attention to what is equitable,” Wilt said.

“In the short term, it’s going to be painful,” he said. “In the long term, it will even out.”

How does this end?

Trade wars are like other conflicts: They’re imposed for a reason, the target retaliates, and so on until the issues that started it are addressed.

This one is different, Tedeschi said.

“That sort of resolvable trade dispute is not what’s happening here,” he said.

The North American tariffs are being imposed as an emergency action to stop the flow of fentanyl into the country, and national security is cited as the reason for the Chinese tariffs.

“This is much less of a traditional, negotiable problem in the vein of prior trade disputes,” Tedeschi said.

Previously, tariffs have been used on specific goods to address specific disputes.

In 2009, during Obama’s first term, the U.S. accused China of dumping tires on the American market, so the U.S. imposed a 35% tariff on Chinese tires.

The price of all tires increased as a result, Tedeschi said, and the price didn’t decrease by 35% once the tariffs were removed.

The courts could end the tariffs unless they’re also approved by Congress, said Meyer, the Duke professor, because presidents aren’t empowered to impose taxes or tariffs.

Trump is citing Cold War-era laws allowing presidents to act in emergencies, Meyer said.

Meanwhile, investors are reacting, as the stock market has endured deep drops while the tariff talk plays out.

“The uncertainty is almost as bad as the tariffs themselves,” Meyer said. “I think you might see the administration look for some sort of off-ramp.”