Reference News Network, September 27 report: On September 24, the "Nikkei Shimbun" published an article titled "Who Are the Winners in the Era of High Tariffs?" by Professor Yasaji Furuse from the University of Tokyo. The following is a compilation of the content:
After Trump returned to the White House, he started imposing unilateral high tariffs on the entire world, and Japan was no exception. Although the reciprocal tariffs for all categories were reduced after negotiations, the tariff rates for industries such as automobiles remained at 15%. This article aims to clarify the purpose of Trump's tariff policy and its main impacts on the United States.
The first objective of the tariff policy is to eliminate the trade deficit between the United States and all trading partners. President Trump has consistently argued that the massive trade balance deficit of the United States stems from closed market environments of trading partners. This view is clearly reflected in the calculation of reciprocal tariffs. He attributes the current trade deficit entirely to the insufficient imports from trading partners and converts the trade barriers of the countries he considers responsible for the low imports into tariff rates.
The second objective is to revitalize American manufacturing. The proportion of manufacturing in overall U.S. employment is declining, which the Trump administration views as a major issue concerning national security.
A lack of capacity to produce warships and tanks would make it difficult for the United States to defend itself in times of crisis. It can be said that the high import tariffs imposed on steel, aluminum products, and automobiles and their parts before the implementation of the reciprocal tariff policy were also aimed at revitalizing manufacturing.
The third objective is to force relevant countries to make concessions on economic and political levels. In fact, after two weeks of negotiations, the Trump administration did indeed obtain many economic concessions from trading partners. For example, Japan, as an exchange for reducing the reciprocal tariff rate to 15%, agreed to expand the import of agricultural products such as rice and pledged to invest $55 billion in the United States.
Whether the tariff policy brings benefits to the United States mainly depends on how much the tariffs are passed on to domestic prices in the United States. First, we will try to discuss it from a theoretical perspective.
President Trump often claims that "tariffs are borne by the exporting country," meaning a 0% pass-through rate. Conversely, a 100% pass-through rate means that all tariffs are borne by the importing country.
Small economies have little impact on international market prices. For small countries, international market prices are given, and their export supply curve is flat. This means that if a small country imposes a tariff on its own, the pass-through rate will reach 100%, thus imposing a heavy burden on itself. However, as a large country like the United States increases its demand for imported goods, it leads to a significant increase in global supply, thereby pushing up international market prices and encouraging further increases in supply. In other words, even if the export supply curve of a large country rises, the tariff will not be fully passed on to its domestic price.
So, what is the pass-through rate of this round of tariff measures? According to the research of Professor Alberto Cavallo from Harvard University and others, due to the impact of tariffs, the average price of imported goods in the United States increased by about 5% from March to August this year. However, given that the average tariff increase far exceeds 10%, this pass-through rate is not high. Therefore, at least for now, tariffs are unlikely to make a significant contribution to the recovery of U.S. industries, especially manufacturing, that face intense import competition.
What effect does this have on improving the trade balance? The current global tariff policy will inevitably lead to a reduction in U.S. imports. However, a reduction in imports does not necessarily mean an improvement in the trade deficit, because a reduction in imports will also lead to a reduction in exports.
In the short term, a reduction in imports will reduce the demand for foreign exchange and push up the dollar exchange rate. As a result, the price of U.S. products abroad will rise, leading to a reduction in U.S. exports. In the medium to long term, protective tariffs will encourage the transfer of production resources such as labor to industries that strongly compete with imported goods, thereby putting pressure on export-oriented industries.
Historically, both the United States and Japan have had similar fluctuations in import and export volumes.
According to data from the U.S. Department of Commerce, since the demand for imports surged, the trade balance of the U.S. deteriorated sharply shortly after the inauguration of Trump's second administration, i.e., in January to March this year. However, both imports and exports have since recovered to previous levels.
If the tariff policy continues for a long time, it will naturally have a significant impact on the economy. For U.S. manufacturers, the increase in the price of imported raw materials and components caused by tariffs is not a good news. However, if the tariffs can also increase the price of domestically produced U.S. products, the negative impact will be mitigated.
Additionally, increasing direct investment in the United States to avoid tariffs will also help revitalize manufacturing. First, the United States is less dependent on other countries, so a contraction in trade volume will not cause particularly large losses. Second, as mentioned above, the incomplete tariff pass-through rate may improve the U.S. trade conditions. Trump's tariffs may indeed bring some benefits to the United States. However, they will cause significant economic losses to countries outside the United States. Moreover, industries that survive through protectionism will eventually lose competitiveness. In the long run, this could also have a negative impact on the U.S. economy.
We must also not forget that the "non-discrimination principle" advocated by the World Trade Organization is being ignored. This disregard for rule-based trade will eventually become a "boomerang" that hinders the U.S. economy. (Translated/ Liu Lin)
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