A group of allies of former U.S. Trade Representative and elected President Donald Trump are actively preparing to launch a plan to impose a large-scale new tariff on imported products (Trump Tariffs 2.0), surpassing any level of tariffs during Trump’s first term (Trump Tariffs 1.0).
A document seen by the U.S. media POLITICO shows that trade lawyer Robert Lighthizer, born in Ohio, and his allies have been circulating memos to each other, preparing to convince members of Congress and the public that significantly increasing the tariff plan will inject vitality into the U.S. economy rather than destabilizing it. The document was provided by a source close to policy planning.
Advisors closely related to Lighthizer and Trump’s transition team have also been discussing with key legislators and congressional staff on how Congress can play a role in implementing the new government’s tariff plan.
The source told POLITICO that Trump’s allies may release the economic basis for the tariffs in the coming weeks, indicating that “economic models cannot accurately predict the impact of tariffs on the economy.” Trump’s proposal aims to promote domestic manufacturing and reduce foreign dependence, including imposing a “universal” tariff of up to 20% on all goods entering the U.S., and at least a 60% tariff on all goods imported from China.
The Wall Street Journal analysis states that it will be more difficult for the Chinese Communist Party to respond to Trump’s trade war 2.0.
The U.S.-China trade war 1.0 began in 2018, when then-President Trump imposed tariffs of up to 25% on $350 billion worth of Chinese imports, and in October 2019, an additional 30% tariff on $250 billion worth of Chinese goods.
The document distributed stated that traditional economic models “assume that tariffs can never stimulate domestic production.” However, the document added, “When the U.S. International Trade Commission studied Trump’s tariffs, they found that domestic production in every industry was increasing, but these models all assume that the real economy will never produce such results.”
The discussions and preemptive countermeasures suggest that Trump’s second term will witness significant changes in the trade war, and indicate that Lighthizer, driven by ideology, has gained unprecedented approval among Republicans in his mission to reshape the global trade system during Trump’s first term in office.
Lighthizer frequently discusses trade issues with Trump and has been working for months to refine Trump’s campaign rhetoric on tariffs and behind-the-scenes policy planning.
During the campaign, Trump repeatedly stated his intention to impose tariffs of at least 60% on Chinese imported goods and 100% tariffs on Chinese cars produced in Mexico to avoid sanctions.
For months, Lighthizer and his inner circle have been preparing trade and economic policy actions for the first 100 days of the new government, including urging Congress to consider legislation to handle tariffs, which may provide revenue to offset significant anticipated tax cuts.
Regarding the universal tariff, House China Task Force Co-Chairman John Moolenaar commented, “I believe there will be discussion between the White House and Congress on these issues and a way to collaborate.”
Although no final decisions have been made, Trump could potentially begin imposing tariffs on his first day in office under the International Emergency Economic Powers Act, which grants the president broad powers to take trade actions.
Trump’s trade war 2.0 is bound to impact China’s export trade. After more than three years of rigorous COVID control, resulting in a collapsed real estate market and weakened consumer confidence in China, exports are one of China’s few remaining economic engines.
An op-ed in the Wall Street Journal stated, “Beijing’s potential countermeasures this time are more limited, especially due to the risk of excessive devaluation of the yuan.”
The yuan against the U.S. dollar depreciated by about 10% from early 2018 to the end of 2019. According to Morgan Stanley’s estimate, this offset about two-thirds of the impact of U.S. tariffs.
To offset the 60% tariff increase, a larger depreciation of the yuan would be needed. The yuan against the U.S. dollar is now 3% lower than at the end of 2019.
The article notes that if the CCP opts for devaluation to alleviate trade impact, it will further intensify the trend of capital flight.