As illegal cutbacks continue, White House heaps new import tax on US economy

(Originally published Feb. 11 in “What in the World“) U.S. President Donald Trump imposed a 25% tariff on all imports of aluminum and steel.

Trump imposed similar tariffs in his first term—25% on steel and 15% on aluminum—but negotiated exceptions for many trading partners, including Canada. In fact, what Trump did was not impose new tariffs, but rather remove the exceptions and raise the tariff on aluminum to that on steel.

The tariffs will likely hit Canada and Mexico hardest and come despite Trump’s decision to postpone by a month blanket 25% tariffs on imports from the two countries. The U.S. economy will also take a hit. Trump’s 2018 tariffs raised the average cost in the U.S. of steel by 2.4% and aluminum by 1.6%.

But Trump has complained that subsidies make foreign steel artificially cheap, disadvantaging U.S. producers. The U.S. imports only about a quarter of its steel, but roughly half of its aluminum. Canada and Mexico account for almost 40% of U.S. steel imports. Canada supplies half of U.S. aluminum imports.

While meant to boost U.S. manufacturers, the tariffs stand to raise the cost of domestically produced products, offsetting any benefit from Trump’s tariffs on imported goods from China and other countries that can rely on cheaper, subsidized aluminum and steel.

And, as has now become classic economic lore, tariffs just don’t do what Trump thinks they do: reduce trade deficits, generate tax revenue, and restore manufacturing jobs. On the contrary, tariffs represent a regressive tax on consumers, lower overall imports and so don’t generate increased tax revenue, and typically provoke retaliatory tariffs, which hurt U.S. manufacturing exports. Indeed, 92% of the tariffs collected during Trump’s first term were spent compensating U.S. farmers for foreign tariffs on their produce.

Speaking of American goodwill abroad and its impact at home, the U.S. Agency for International Development said it is putting most of its 10,000 employees on leave as Trump prepares to fire thousands of workers from the U.S. economy’s largest employer—the Federal government.

The Wall Street Journal, citing anonymous sources, says the order could come this week. The White House denied the report, which comes as a Federal judge placed on hold Trump’s deadline last Thursday for Federal employees to resign in return for eight months’ severance. The White House has already fired more than two dozen senior officials at the Federal Bureau of Investigation and the Justice Dept. and is compiling lists of thousands of other law enforcement agents there whose employment it will review.

Last Tuesday, the Trump Administration posted a notice on USAID’s website saying that the agencies non-essential personnel would be put on leave as of the end of the week. Many USAID contractors had already been laid off after the White House imposed a freeze on foreign aid.

Officials left running the Justice Dept. have meanwhile sued Chicago and the state of Illinois for enforcing so-called “sanctuary” laws that restrict their cooperation with Immigration and Customs Enforcement officers trying to identify, apprehend, and deport suspected illegal immigrants.

And U.S. District Judge John McConnell in Providence, Rhode Island, said the Trump Administration had violated his Jan. 31 court order lifting the White House’s freeze on federal spending. A group of Democratic state attorneys general has sued the Administration, saying it is still withholding funds. McConnell issued an order directing it to immediately release all funds. The Administration said it is appealing that ruling.

The freeze has already stopped the flow of federal grants for clean energy projects. That has thrown into doubt the roughly $165.8 billion in investments announced since the 2022 Inflation Reduction Act was passed.

Congress, not the President, has Constitutional authority to approve government spending. But Trump’s lawyers are arguing that even government appointees and “special employees” like Elon Musk and his fictional “Department of Government Efficiency” must be given access to elements of the executive branch to avoid impinging on the president’s power over it. U.S. district judge Paul A. Engelmayer on Saturday issues a ruling ordering Doge officials to immediately destroy all records they had accessed at Treasury since being given access Jan. 20 to its payment systems by Treasury Secretary Scott Bessent.

The Treasury Dept. is technically part of the executive branch of government. But since the 19th century, the White House has treated the civil service employees working in cabinet-level departments as beyond the president’s reach. In an opinion piece published by The New York Times, five former Democratic Treasury secretaries—Robert E. Rubin (Clinton), Lawrence H. Summers (Clinton), Timothy F. Geithner (Obama), Jacob J. Lew (Obama) and Janet L. Yellen (Biden)—warned that Musk’s moves at Treasury represent an assault on American democracy.

Uncertainty about what Trump’s policies will be, how they will affect government regulations and spending, and how the U.S. economy will respond are already having a dampening effect on the private sector. Consumer sentiment in one February poll dropped to its lowest since November 2023, with many small businesses hit by fear among immigrants that they’ll be swept up in Trump’s deportation drive. And despite hopes that deregulation would unleash a flurry of corporate deals, corporate mergers and acquisitions in January fell to their lowest in a decade.

At the rate Trump is going, The Daily Beast’s Danielle Moodie predicts, he’ll manage to extinguish U.S. economic growth within the first 100 days of his term. “It is extraordinary because I think that he may tank our economy faster than any other Republican president that usually takes their entire first term in order to do that. I think Donald Trump is gonna do it within the first 100 days.”

Trump’s tariffs aren’t just about securing fairer trade, though. He’s also using them as part of an economic arsenal to pursue non-economic goals, a form of mercantilist statecraft Washington hasn’t used so heavily since the Cold War, according to Rabobank’s Michael Every.

Is it going to cause a little pain? Trump says maybe, maybe not. But the results will be worth it, he promises. Time, obviously, will tell. But Trump seems to be applying the same philosophy to tariffs as he has to his marriages, allowing hope to triumph over experience.