Weekly Updates
Weekly Updates
- Former US President Trump has suggested that US consumers of any goods made (or partially made) abroad should pay a 10% tax. This is a universal tariff. It has happened before, but in very different circumstances.
- In August 1971, former US President Nixon imposed a 10% “surcharge” on all imports into the United States. Simultaneously, Nixon broke the dollar’s gold link and initiated government control of wages and prices. The 10% rate was chosen as being sufficient to force other countries to revalue their currencies without causing immediate “tit-for-tat” retaliation. The tax was lifted in December 1971 after a currency realignment.
- In 1971, the US imported 3.4% of GDP. In 2023, it imported 12.7%. Importantly, the structure of trade has also changed dramatically. In 1971, trade was still an “imperial model”—most US exports were made with US components and labor, with some limited raw material imports. Today, most US exporters rely on imported parts to produce their products. A trade tax increases US exporters’ costs, reducing competitiveness.
- Nixon’s tax had an objective in mind, and retaliation was delayed while currency changes were negotiated. A Trump tax may be more open ended, inviting retaliatory tariffs. The proposed Trump tax would have a bigger economic impact than the Nixon tax.
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