of 2024, President Donald Trump promised to use tariffs to reset America's global trade relationships, and in the first months of his second administration, the threat of tariffs have roiled markets.

Today's guest helps us unpack the rhetoric from the reality around tariffs.

She's Kimberly Clausing, this week, on "Story in the Public Square."

(upbeat music) (upbeat music continues) Hello, and welcome to "Story in the Public Square," where storytelling meets public affairs.

I'm Jim Ludes, from the Pell Center at Salve Regina University.

- And I'm G. Wayne Miller, also with Salve's Pell Center.

- And our guest this week is Kimberly Clausing, the Eric M. Zolt Chair in Tax Law and Policy at the UCLA School of Law.

She's joining us today from California.

Kim, thank you so much for being with us.

- Happy to be here.

- Well, President Trump has made, in both of his administrations, tariffs a central feature of his international economic policy, and even his domestic economic policy, and with that has come a lot of noise, and I think, a lot of confusion, about what tariffs actually are, what they do, who pays for them, so I'm hoping we can unpack some of that today.

Let's start with just, you know, basic definitional stuff.

What is a tariff?

- A tariff, very simply, if you look it up in the dictionary or an economics textbook, is a tax, it's a tax on imports, and thus, it affects the price of imports, but it also affects the prices of goods that compete with imports, so if you have a tariff on wine, it's gonna make foreign wine more expensive, but it's also gonna make the wine that competes with foreign wine, like from California, for instance, more expensive, as well.

- So, you know, President Trump has maintained that if he uses these tariffs, the American consumer will not pay, but foreign governments or foreign businesses will pay those tariffs.

What's the truth about that?

- So there's been a host of really high-quality studies that have been done on the Trump administration tariffs from his first term, and those tariffs were already much smaller than the ones he's enacted so far, and certainly far, far smaller than the ones he's planning, but they're still a useful guide to what will happen when we tariff things.

So Trump tariffed mostly Chinese products, about $300 billion worth, and there've been, you know, nearly a dozen studies looking at that episode, and each and every one concluded that US buyers of imports were the ones who faced the price increase.

The Chinese firms didn't lower their prices.

Now, it's possible, in theory, that foreign firms could lower prices somewhat in response to tariffs, but what we've seen in the data and what we would expect to happen, should, you know, these tariffs expand, is for the US consumers to really bear the full brunt of most of those measures.

- Is there a theory of the case, though, behind the use of tariffs, or, you know, historically, when have they been used?

Why is President Trump so focused on using them now?

- Yeah, so there are at least, you know, two or three good reasons for using tariffs.

We might want to use tariffs, for instance, to reduce trade for national security reasons.

You see, for instance, with Russia's invasion of Ukraine, there were a number of measures, including trade restrictions, meant to reduce our ties with Russia due to that event, right?

And similarly, you wouldn't want free trade with adversaries during a war, as one example.

A second reason to use tariffs is sometimes they're useful as retaliation in response to foreign trade practices that are deemed unfair.

So, for instance, if you look at the Chinese tariffs, some of them during the first Trump administration, and the additional 18 billion, which is a very tiny amount of tariffs that were proposed in the Biden administration, those tariffs meant, in part, to respond to practices that the Chinese government did with respect to their industries and firms that US trade authorities deemed as unfair, and so then the thought was we can level the playing field somewhat by putting a tariff on those products.

But the way that tariffs are being suggested now is different from those two cases that I just mentioned.

This isn't really a national security argument, it isn't really an unfair trade practices argument.

The argument is much broader than that, and you can tell by the fact that the Trump administration began by levying tariffs on China, but also on Canada and Mexico.

Now, Canada and Mexico are two of our closest trading partners, we've had free trade with them since 1994, and free trade with Canada even earlier, 1989, and in auto and auto parts, 1964, so we've got this longstanding, open relationship across North America, there's no evidence of unfair trade practices with Canada and Mexico, so this broader use of tariffs is really looking for other reasons, not just national security or unfair trade practices.

And in general, as you pointed out, it's just a broad policy tool that the president really likes for a whole host of reasons that he's described, but one could view it as, more broadly, fiscal policy.

He wants to raise revenue with this, he wants to, you know, respond to perceived harms that have been done to the United States.

Now, these perceptions may not really jibe with reality, but I think it's a much, much broader use of tariffs than we've seen in, really, any rich country in modern history.

- So Kim, starting with the election, and certainly since January, tariffs have been in the news, they've been on social media, you turn on talk radio, people are talking about them pretty much wherever you look, tariffs is like the buzzword.

Do you have any sense of the average American understanding or not understanding what a tariff actually is?

I mean, you gave us a definition, which was really good, but any sense of what, you know, the quote, unquote, "common man or woman" would understand of it?

- There was a post shortly after the election that showed a big increase in people Googling what is a tariff, after the election.

(all laugh) - Of course, of course.

- and I sure wish that more Americans had Googled this before the election because I think they realized, "Oh, Trump's gonna be president, we need to figure out what this economic policy is," because they would see that the Trumpian tariff proposals are really the largest tax increase we've seen in my lifetime.

If he goes forward today, we're talking on April 2nd, with this broad swath of tariffs that are expected, it will be the largest tax increase in 50 years, so this is something that I think, ideally, voters would've understood ahead of time.

I think, now, if we look at polling data, and you ask Americans, "Do you expect tariffs to increase prices?"

more than two-thirds of Americans, not a lot more, but maybe 65 to 70, in that neighborhood, think that tariffs will increase prices, so the information is getting out there, due, in part, to efforts like your own, and journalists sort of trying to tell this story and help explain to people how tariffs work, but, you know, it's possible it's too little too late in terms of the policy implications, although we'll see what happens in the days ahead.

- So how do you think consumers will react as they see prices increase, you know?

And then maybe you can get into, you know, what particular goods and services will increase because of the tariffs, but start with your, you know, your crystal ball, what the reaction will be from the American consumer.

- Yeah, so we import more than $3 trillion worth of products every year.

When prices go up, consumers tend to buy less, right?

They'll also see prices of competing goods go up, as I mentioned earlier, and so they're gonna buy less of that as well, so much like a tax increase, imagine that, you know, your wages got taxed more, you would then have less money to spend, and so you would spend less, this works very similarly, right?

You may have the same amount of wage that you're getting from your employer, but when you go to the store to buy things, it goes less far, right?

So the total purchasing power of your wages will go down and that'll make Americans feel poor.

One thing to remember with the tariffs, and with trade in general, is that a lot of the imports are intermediate goods, but that doesn't mean they don't have effects on ultimate prices.

So imagine, for instance, you're importing steel, and the steel is more expensive, well, the cutlery firm then has a higher cost associated with buying the steel, and then they're gonna charge more when they sell knives and forks and spoons to Americans that are made out of that input.

So some of these prices kind of trickle through the supply chain, and some of them, you know, are more immediate.

- [Wayne] So the stock market has taken a beating in the last several weeks.

Is part of that tariffs?

- Yes, most definitely.

I think one difficulty associated with the tariffs is that they really disrupt US production, US manufacturing, US economic growth because they're introducing these new cost shocks, right?

As I mentioned earlier, more than half of our imports are intermediate goods, so if you're a firm that's making, you know, a car, or an airplane, or in electronics, you know, you're relying on these intermediate goods, they've become more expensive, and so that makes your competitiveness lower in the world economy, and you may wanna sell your cars around the world, or Boeing may wanna sell its planes around the world, but if it's paying more for parts, right, that reduces its competitiveness.

Firms also have to worry about retaliation, and we've seen immediate and strong retaliation from the tariffs that have been enacted so far, and our trading partners, almost across the board, have asserted that they will respond to tariffs with tariffs in kind.

They're doing this not so much to help their own economies, but to show sort of strength in negotiation with the Trump administration, but what this will do is also cause pain in US export markets, so if you're an exporter and you have fewer markets to sell to, that will cause you to contract your activity in the United States.

So exporters kind of get hit two ways.

One, exporters are importers, they buy a lot of parts, and those parts are now more expensive, but two, the markets for their goods are shrinking, and so this is gonna cause a lot of shocks in US labor markets and supply chains that ultimately reduce economic growth and prosperity, - Yeah, Kimberly, I wanna ask you a big question, and I don't know that we can answer it in the 15 minutes we have left in the show (chuckles), (Wayne laughs) but for generations, American foreign policy in the aftermath of World War II was really focused on reducing international barriers to trade based on the premise that reducing those barriers to trade would actually increase the likelihood of peace being durable.

I'm old enough to remember a period in time when free trade was the consensus in American politics, both among Democrats and Republicans.

There were voices of dissent, but there were certainly, there was a general consensus about the value of free trade.

What did free trade mean for American workers and American consumers in the 1990s and in the first couple of decades of this century?

- Yeah, that's a great question, and I think before we even get to Americans, one thing we should recognize is that countries have had their own choices about trade policies, for decades, and we can learn from that, you know, and there have been myriad studies that looked at this question of whether countries that have high trade barriers are more or less prosperous than those who have low trade barriers, and the research is really clear that erecting trade barriers and isolating yourself in the world economy is not a path to prosperity, and you can see that very quickly if you just examine which countries really rely on tariff revenue for a decent part of their government revenues.

Those are some of the poorest and least prosperous countries in the world.

But if you look at the United States experience over the last several decades, in general, there's been a lot of really strong, positive stories that one can tell about the US economy, its economic growth, innovation, entrepreneurship, all have been very successful.

Economists and people from throughout the political spectrum are concerned, however, about big increases in income inequality that have happened over the last few decades, and some have blamed trade for contributing to that, at least in part, right, so we have to ask the question, why is it that wage growth has been disappointing for many Americans, and income inequality has increased for many Americans?

Can we blame all of this on our trading partners, or on immigration, or on some other causal factor?

I've actually written a whole book, in part, on this question, called "Open," which I recommend to your viewers if they wanna dig more deeply in this, but one thing I conclude in that book is some of those concerns are very real, but there's a lot of other explanations beyond trade that account for them.

Technological change is a really big one.

We've seen massive changes in technology that have really shifted our economy around in ways that have reduced the wages of those with fewer skills than those with greater education, right?

So if we compare those two groups, the technological change has not treated them similarly.

But we've also seen rising market power, we've seen declining immunization, big changes in tax and regulatory policy, and so forth.

So this is a lot of churn (chuckles), to say nothing of capitalism itself, which is constantly reallocating jobs between firms in the economy, and so I think trade may have played some role (chuckles) in the inequality trends that we've seen, but there's so many other things that have contributed that it's hard to lay the blame all on trade.

So a second question we might ask is, okay, well, if trade even caused part of it, shouldn't we just restrict trade, and won't that help?

And that's where I think it's important to realize that if there's been some trade shocks, which certainly there has, introducing more trade shocks won't necessarily help matters.

It's sort of the, the simple metaphor is if you run someone over with your car, will backing up and reversing help with that?

(Jim and Wayne laugh) - Yeah, like- (all laugh) So, you know, I think that we've run the risk of saying, "Okay, well, let's try to get back to the 1950s, and try to introduce all these new shocks to kind of return our economy to some hypothetical yore," but, you know, we'll see that that's just gonna generate more disruption and reduce people's standards of living, relative to other policy solutions like focusing on investing in left-behind communities, building up infrastructure, building up skill development, things like free community college, and a more robust safety net to catch those who've been left behind.

Like, all of those are really sensible, fundamental solutions, but trying to reorient the whole economy through a massive consumption tax is probably gonna hurt the very same people that you're worried about losing out in the last few decades.

- So, Kim, I'm hoping you can zero in again on the consumer, and I'm thinking of two broad areas, one big-ticket, one small-ticket.

The big-ticket would be cars, in terms of purchasing, in terms of do you hold on to your car, cars are gonna increase in price, and then also on food.

Can you give us a breakdown of both those areas, 'cause I think our audience certainly would wanna know what might be on the horizon?

- Yeah, so in terms of cars, it's clear that cars are gonna get more expensive in the United States.

We've already got big automotive tariffs in place, and with more expected, potentially, and with fewer exceptions, so that's gonna, when you go to the car dealership to buy a car, you know, you'll see already that prices are rising.

There's also the effect on the US car market in general.

If you imagine you're trying to make a new car, and you're trying to decide, "Should I make that in the United States of America, or should I make that in Korea or Germany?"

right, in the United States of America, you have to worry that one, every single part you buy may be subject to some tariff, particularly if it's not made in the United States, right?

You know, then you're pulling in parts, and cars are typically made (chuckles) with parts from, you know, dozens of countries, right, so every time you're pulling in one of those parts, it has a higher cost, and so that's gonna make it harder to make a car in the United States, because it's gonna be more costly than its German or Korean counterparts.

And remember, these car companies are trying to sell all around the world, not just to Americans, right, so if you're thinking about "Should I invest and make that car in Korea, or make it in Germany (chuckles), or make it in the United States?"

you know, in some of these cases, the parts are, you know, tariff-free, but in the United States, you have to pay tariffs on parts.

But then market access to the whole rest of the world, right, is easy, from countries that aren't engaged in a big trade war, whereas the United States has sort of singled out each and every trading partner as an adversary.

So I also think that on the production side, this is really tough.

Now, if you get to food, I think there's a similar story there.

So, you know, the goods that we import get more expensive, you'd expect avocados to be more expensive, maple syrup, if we pick some Canada and Mexico goods to start with, and then the US alternatives, the California avocados and the Vermont maple syrup, also get more expensive, not because their costs have gone up, but because they see that their competitors can charge more so they can charge more, too.

So when you go to the grocery store, and people should look at, you know, the produce section, a lot of it is not from the United States, all of that's gonna get more expensive, and even if there are some products that are from the United States, those, too, will see their prices going up because they're in competition with these goods that are being tariffed.

So you have to wonder about some of the goals here.

Like, for instance, does tariffing coffee even make sense when really, the only place in the United States that makes coffee is the Big Island of Hawaii, and they can't possibly make enough to satisfy all of us, you know?

So there's gonna be some really big cost increases that US consumers are facing on goods like produce and coffee.

- So the president and his allies, in recent weeks, have been talking a lot about something that they call reciprocal tariffs.

Can you unpack what that actually is, and is there a valid case for applying them?

- I think the Trump administration is misusing that term.

When one thinks about reciprocity, one usually thinks about, "Oh, somebody did something bad to me, I should respond to it," and they seem to be casting that term in this really broad way, and I think they're doing that, in part, to build a legal rationale for their tariffs, because if you look at presidential authority, you'll see that Congress has the power of the purse, not the president, right, in terms of broad tax measures, but they have delegated in certain exceptional circumstances, authority, to the president, and one of those is to respond to unfair trading practices, so I think they're trying to create the illusion that there's this big umbrella of unfair stuff that's happening to the United States, but their evidence for that is very, very scant.

The USTR just put out a report of all these supposedly unfair trade practices abroad, but it's a very similar report to the one that was put out last year, so we don't see big changes in what's going on abroad, and we also don't think that a lot of the measures that the Trump administration is putting forward as worthy of a tariff response really have anything to do with unfair trade practices.

So he's complained, for instance, about the tax systems of other countries.

Well, other countries are free to have the tax systems that they choose, That's not an unfair trade measure.

If they have a consumption tax, that's not a disadvantage to our producers, and it's not an advantage to their producers.

And I have a recent policy brief at the Peterson Institute website where I kinda go through these tax cases one by one, but there's really no evidence that any of that has anything to do with an unfair trade practice.

And even if you take a more basic case where you say, "Okay, well, this country is tariffing our goods at a higher rate than we're tariffing their goods, so should we match them?"

like, I think that's also a deeply flawed and misguided rationale, even though it makes a little more sense than the tax one, because it's basically saying, okay, just because they've done, you know, a arguably misguided policy (chuckles) that's hurting their own consumers and making their own industry less productive, we should simultaneously do that, too, The United States has prospered for many, many, many decades having lower tariff barriers than many of our trading partners, and that hasn't hurt us one iota, and when you look across the world at the countries that have lower tariff barriers, they're often far more successful than the countries with high tariff barriers, so I'm not sure why we'd wanna emulate, you know, the poor countries of the world that don't have the open trade policy with our own trade policies.

- So you touched on this already, and that's the power of the president regarding tariffs.

Has Congress ceded too much authority to the president?

- Yes, I think that's abundantly clear, and I think it's time for Congress to take back some of the power of the purse.

And I don't think it's just the Trump administration.

I mean, the Trump administration, I think has been the most egregious abuser of these exemptions, or sorry, exceptions in trade law, and they've taken a very broad interpretation of things like national security, and emergency, and unfair trade practices, but others before them have also stretched those definitions, and I think Congress, it would behoove Congress to reclaim some of their authority and sort of take steps to limit when can a president call something an emergency, when can a president invoke national security.

If only 3% of metals, for instance, have anything to do with national defense, can you then tariff 100% of metals, or do you have to make some direct connection between the item that you're putting tariffs on and a true national defense priority?

So I think Congress should do a lot more here to limit the powers of the president, particularly in today's moment when the Trump administration is really threatening to use tariffs in a much broader and more harmful manner.

- Yeah, Kim, when you think about the impact of these tariffs over time, historically, are tariffs good for American industry, American businesses, American consumers?

How can we expect this to play out in the coming months and years?

- Yeah, I think there are several ways to look at that, and I don't think tariffs have been good.

One example would be the steel industry that has benefited from decades and decades of tariffs yet always seems to need more tariffs, right?

You might think if tariffs were successful, then eventually, you'd have an industry that would be able to compete in world markets without the protection, but that's definitely not been the case in the steel sector.

Further, if you look at studies of the steel tariffs, you'll see there that those tariffs create big collateral damage elsewhere in the economy.

For every steel job that you generate by protecting that sector, and you might generate a few, but not that many, if you look at the studies, maybe you get 1,000 steel jobs, right, but for every one of those jobs you get, you lose a multiple of those jobs in sectors that use steel, and there've been really careful analyses, for instance, of the Trump China tariffs, which go across many goods that aren't steel, but looked at sort of counties in the United States and areas that benefited from protection for their industries and asked the question, like, even in those areas, was job creation greater than it otherwise would've been, and what was found in that study was that the harms associated with the retaliation and the supply chain disruption were much greater than the benefits from the tariffs, so even if your only criteria is American job creation, the tariffs were actually a net negative for American job creation, because they destroy more jobs due to retaliation and supply chain disruption than they create in the protected industries, and if you're tariffing all the industries, I would expect to see that pattern magnified.

- So we've got 30 seconds for this one.

How can American consumers and American business owners protect themselves in this environment?

- I think one thing to do would be to speak out against these policies.

I think the business community has been eerily quiet despite seeing very clearly that these policies are harmful to them, in part, because they might prefer some other Trump administration policies, like the tax cuts that they're hoping to get, or the deregulation that they're hoping to receive, but I think what we're gonna see, should this, you know, tariff experiment be done fully as opposed to being clawed back, in the days ahead, is that the business community will have no choice but to speak out about the harms that these tariffs are doing to the economy.

I'm not sure there's a good way to work around this sort of policy just by changing your behavior (chuckles) or doing this or that.

This is a deeply destructive policy that could easily create a recession, so I think the best thing that businesses and consumers can do is write their Congress people and the president himself, and sort of express disapproval of this harmful policy.

- Kimberly Clausing, UCLA School of Law, thank you so much for spending some time with us.

That is all the time we have this week, but if you wanna know more about "Story in the Public Square," visit us at pellcenter.org, where you can always catch up on previous episodes.

For Wayne, I'm Jim, asking you to join us again next time for more "Story in the Public Square."

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