Why Trump’s Tariff Plan Is Getting Riskier, According to Economists | WSJ

- The big money is coming in on April 2nd, from the April 2nd. - [Narrator] The next round of President Trump's Tariffs will be reciprocal tariffs, which economists say threaten far more countries than his other trade policies. - Whatever they tariff us, other countries, we will tariff them.

That's reciprocal, back and forth. - [Narrator] But economists overwhelmingly agree that the move will hurt US consumers with rising prices. Tariffs in general raise the price of everyday goods because companies pass the higher importing cost onto consumers but reciprocal tariffs will amplify this effect because the policy will raise tariffs across so many more industries.

- Tariffs tend to reduce entry by foreign companies. They don't find it's gonna, they're not gonna have enough of a market to make it worth the investment to enter that market. - [Narrator] This would reduce the variety and reliability of products available to American consumers.

But Trump sees reciprocal tariffs as a way to even the playing field. - Countless other nations charge us tremendously higher tariffs than we charge them. It's very unfair.

We have been ripped off for decades by nearly every country on earth, and we will not let that happen any longer. - The idea of fairness never involved a comparison of tariff line by tariff line 'cause there were just so many more issues on the table in thinking about what is a fair deal. - [Narrator] The US is one of 166 members in the World Trade Organization and under WTO rules, - You have to offer all the members of the club your best rate, except you're willing to cut these special deals with friends.

There is a presumption built into the World Trade Organization that lower rates overall are a good thing, not only for the world economy, but for individual com countries. - [Narrator] Trump blames the imbalance in tariff rates for the growing US trade deficit. - China's average tariff on our products is twice what we charge them.

- Some economists point to the fact that the US needs to run a trade deficit because other countries want to acquire dollar denominated assets because those assets have historically been viewed as safe assets. - [Narrator] Some economic experts point to the federal budget deficit as another reason the US consistently has such a big trade deficit. - That is a source of the need for borrowing from abroad.

- [Narrator] Economists say they're generally not concerned about the trade deficit because debt isn't inherently bad. It just means the US is borrowing from the rest of the world. But economists do watch the level of US debt overall.

- There is a case to be made that we need to reduce consumption relative to our income. How do we do it? Certainly not with bilateral tariffs.

- [Narrator] That's because higher tariffs don't just reduce imports, they reduce exports too. When imports go down, because Tariffs make it more expensive for American companies to buy foreign goods, there are fewer dollars in foreign markets driving up the dollar's value. This makes American exports more expensive for trade partners, so they buy less of them.

In the end, imports and exports both go down leaving the deficit unchanged. According to economists, another reason why reciprocal tariffs won't reduce the trade deficit is because companies often shift their supply chains to other countries to avoid high Tariffs. - We have reduced our trade with China, but we still need the things that we used to get from China.

Companies that make footwear have turned to subcontractors in Vietnam to avoid the high tariffs that were placed under the first Trump administration. This happened for a lot of different goods, and altogether you saw the US trade deficit with Vietnam growing. You will be like playing whack-a-mole.

You'll try to close the deficit on one country and it will just pop up for another country. - [Narrator] Trade experts say that implementing reciprocal tariffs will be logistically complicated because there are thousands of items that are affected by tariffs, and the US has nearly 200 trading partners. Some economists argue that reciprocity doesn't make sense as industrial policy.

- Whatever they're charging, we're charging. Very simple. - What it does is it gives other countries the right to set our tariff rates.

So if another country wants to protect something that we don't feel we need protection, something that we're really good at, we adopt their tariff rate because we retaliate against them if they won't lower their tariff rate. - [Narrator] Many countries already have lower rates than the US and it's unclear whether Trump's plan involves lowering rates too. Trump has also said he wants to use reciprocal tariffs to target the European Union's Value Added Tax, which is similar to a sales tax.

- They have a 20% VAT tax, which we're considering to be similar or the same as the tariff. - The US auto industry has been getting hammered and hemorrhaging jobs for so long. It is massively unfair treatment and the President's making clear that we are going to pursue a policy of reciprocity.

- [Narrator] This reciprocal tariff plan is just another example of Trump's far reaching protectionist agenda. - I think there's two possible outcomes. One is the rest of the world then says, okay, it's a free for all.

We all gonna raise our Tariffs. But there's an alternative path and it's one that is actually more likely than a lot of people might think, which is that the rest of the world says, okay, the US is going its own way. We don't think that that is enhancing to our economies and we will ban together.

Basically, it will isolate the United States. - [Narrator] People familiar with the administration's tariff discussions told The Wall Street Journal, it could take six months or more to actually implement the reciprocal tariffs. But many economists still worry the slew of tariffs will worsen inflation and lead the US into a recession.

- We have times when the trade deficit falls, you may say, "Oh, that's good," but in fact, no, it's bad because what it means is that the US economy is going through a very rough time.