Economist breaks down how Trump’s tariff threats could affect consumers

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• Geoff Bennett:

  And for additional perspective, we're joined tonight by Mary Lovely, a senior fellow at the nonpartisan Peterson Institute for International Economics. Thanks for coming in.

  Mary Lovely, Peterson Institute for International Economics: Oh, you're so welcome.

• Geoff Bennett:

  So we have got this 30-day pause on tariffs for Canada and Mexico. The 10 percent tariff on goods from China is still on the table for tomorrow.

  How much of this is actually about addressing a trade imbalance? And I raise the question because Donald Trump negotiated a new trade deal with Canada and Mexico in his first term. Is there an actual problem that these tariffs aim to solve?

• Mary Lovely:

  Well, the president has identified two problems at the border, migration and the flow of fentanyl.

  So he has on occasion talked about the trade deficit that we have with our trading partners, but it's hard to know exactly what weight he places on these various factors. So, for today's announcement, it looks like it was on the border issues.

• Geoff Bennett:

  When he talks about Canada, he so often complains about the trade imbalance, which has existed for decades. Canada sells more goods and services to the U.S. than it buys from us.

  On that point, does that justify tariffs?

• Mary Lovely:

  No. No. There's no reason that we should have balance bilaterally. So there's no reason, for example, that the grocery store should buy as much for me as I buy from it.

  So there's no reason why Canada, which is rich in natural resources, shouldn't sell to us, and our companies then use those resources to produce things to sell to the rest of the world. So there's really no reason, no welfare implication of us having a trade deficit with Canada or with any other country, for that matter.

• Geoff Bennett:

  President Trump is also acknowledging now that, if these tariffs take effect, that it will hurt American consumers, at least in the short term.

  He said, it's a little bit of pain, but people understand that. Obviously, so much depends on when, if or how these tariffs are implemented. But how much pain are we talking about generally?

• Mary Lovely:

  Well, Kimberly Clausing and I have run the numbers on this latest round of tariff threats. And we find that, for the average household, it would be about $1,200 more per year, or a consumer loss of $1,200.

  So you can think about $100 a month. Of course, that would — that number would rise if President Trump then goes ahead with other threats that he has made to raise tariffs, for example, on the European Union.

• Geoff Bennett:

  I imagine China sees a lot of upside in all of this. I mean, what's the overall effect of other countries seeing the U.S. as an unreliable or mercurial trade partner?

• Mary Lovely:

  Yes, I think, while we may be celebrating the fact that we may have marginally more resources spent on the border, and these policies are addressing very important problems that Americans care a lot about, there is this long-term cost to doing this.

  And that is that basically the U.S. signaled that the trade agreement that it had signed under the first Trump administration wasn't really worth the paper it was written on. So that's a problem as we look forward. And it's particularly important in terms of the context of building economic resilience and de-risking our supply chains, including, and perhaps most importantly, reducing our dependence on China.

  To do that, we have to create pathways for companies who actually do the creation of supply chains, pathways for them to have confidence that they — if they invest in a particular country, they won't then face new tariffs when trying to come into the U.S.

  I mean, some people will say, well, why not just make everything in the U.S.? Well, that's — it's clear that we can't, that we have to have room to export the things that we're really good at making and import other things from other countries that are used in those products.

  So it's not really the answer. I think that it also is important to recognize that doing so will actually make us poorer, not richer. Many of the things that we import are quite labor-intensive. And they would be prohibitively expensive if they were made with workers in the U.S. who were to receive a living wage.

• Geoff Bennett:

  How damaging is this atmosphere of confusion and chaos, especially if we get locked in the cycle of tariff threat followed by delay or walk-back?

• Mary Lovely:

  I think that, even if we're caught in a cycle where it's a threat and a tariff levy, the damage is profound.

  Again, companies are making long-term bets on where to place supply chains, where to do production. The rest of the world is not sitting still. It is forming agreements that are working around the U.S. And China is sitting out there, and it's providing funds for infrastructure and other development.

  And it has really changed its tune in response and is welcoming countries to sell into its market, and we have seen over the last 10 years some of our key allies and friends actually increasing their integration with China. So I think that this really strikes a blow at our long-term plans to really increase the diversity of where we sell and where we buy and to enhance economic resilience here in the U.S.

• Geoff Bennett:

  Mary Lovely, thank you for sharing your expertise with us. We appreciate it.

• Mary Lovely:

  You're welcome.