Tariffs or taxes? The true economic burden of US trade policy

Editor's note: Xiao Wen is a professor and Ph.D. supervisor at the School of Economics at Zhejiang University. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

The Trump administration has repeatedly imposed tariffs on other countries since taking office. This move has not only disrupted normal trade globally but also inflicted serious harm on the US itself. Its effects are now increasingly evident to those whose interests they were to protect, the American public.

Firstly, prices in the US have repeatedly hit record highs, driving up the cost of living for ordinary citizens. For example, the retail egg prices in the country are skyrocketing. According to the latest data from the US Bureau of Labor Statistics, the price of a dozen eggs surged to $6.23 in March. Newsweek pointed out that US tariff policies have boomeranged, further inflating egg prices and ultimately passing along the increases to consumers. Pharmaceutical prices are also climbing rapidly. A report commissioned by the Pharmaceutical Research and Manufacturers of America indicated that tariffs on pharmaceuticals would raise annual drug costs in the US by $51 billion. If these tariffs are fully passed on to consumers, US drug prices could rise by as much as 12.9 percent.

Secondly, inflation expectations in the US are continuing to go up. According to the Survey of Consumer Expectations released by the Federal Reserve Bank of New York, the median inflation expectations increased by 0.5 percentage points from March to 3.6 percent at the one-year-ahead horizon in April, the largest monthly gain in two years. Similarly, the University of Michigan's index of Consumer Sentiment has highlighted the same issue. Data show that US consumer sentiment in April stood at just 50.8, down from March and marking the lowest level since June 2022. This is also the second-lowest measurement since records were initiated.

Thirdly, the US macroeconomy and corporate conditions are also deteriorating fast. As indicated by the Federal Reserve's Beige Book released on April 23, rising economic uncertainty has significantly worsened outlooks across multiple regions in the US. The World Economic Outlook released by the International Monetary Fund has sharply downgraded its forecast for the country's economic growth in 2025, cutting it by 0.9 percentage points compared to its January projection, witnessing the largest downgrade among developed economies. The report cited rising policy uncertainty, escalating trade tensions, and weakening demand momentum as primary reasons accounting for the downward revision.

In fact, Trump's tariff policies are doomed to fail and are bound to push the US economy into recession. High tariffs are against basic economic principles. According to the Lerner Symmetry Theorem in economics, under perfect competition, import tariffs and export taxes have symmetric effects on trade balance. In other words, raising tariffs not only reduces imports but also undermines exports. In 1930, the US government adopted the Smoot-Hawley Tariff Act, which drastically raised tariffs on foreign goods. This act triggered a trade war worldwide, slashing global trade volume by two-thirds. Far from benefiting regular Americans, the US plunged deeper into the Great Depression. These historical lessons make it clear that imposing high tariffs, especially by an economy as large as the US, is an irresponsible act toward both its own citizens and other countries.

In short, the Trump administration should not scapegoat other countries for the US's trade deficit. Instead, it should face its own issues head-on and return to the negotiation framework of the global multilateral trade system as soon as possible, resolving its difficulties through rational means.