President-elect Donald Trump has called tariffs “the most beautiful word in the dictionary,” even if many economists and some business leaders find it more akin to a vulgar term to be avoided in polite company.
The reality is that tariffs — defined most simply as a tax on imported or exported goods — will be a regular part of the national lexicon in the coming months with implications for Wisconsin and well beyond.
Trump campaigned on imposing sizable tariffs on goods from Canada, Mexico, and China, especially so on China because of the size of the U.S. trade deficit with that country. His reasons include using money raised by such tariffs to reduce the federal budget deficit, to rekindle American manufacturing, and to force Mexico to cooperate on immigration and drug trafficking.
The notion of boosting U.S. manufacturing, especially in sectors such as machinery, boilers, furniture, iron and steel, plastics, and vehicles of many types, resonated with some middle-class voters during the fall campaign. Steel is an example with national security implications, as U.S. production has fallen to 4% of the world total and 12 times less than China.
Many economists don’t like tariffs, however, for reasons that can be supported by history dating back to the time of Alexander Hamilton. The Smoot-Hawley Tariff Act of 1930 was aimed at protecting American farmers and industries but is generally blamed today for deepening The Great Depression. Following World War II, the United States adopted a “free trade” stance still largely in place today, but pressure remains to protect certain industries and hold down costs for consumers — who can benefit from cheaper imports.
In Wisconsin, nervousness about tariffs is less about China in some business quarters than it is about Canada and Mexico.
In 2023, Wisconsin exported a total of $28 billion in goods, accounting for 6.8% of the state’s economy and more than 100,000 jobs in the state, according to a recent report by the Badger Institute.
The three countries that bought the most goods from Wisconsin in 2023 were Canada with $8.5 billion in state exports, Mexico with $4.3 billion, and China with $1.5 billion, the Badger Institute reported. Also in the top five were Germany at $959 million and the United Kingdom at $898 million. Those figures are also cited by the Wisconsin Economic Development Corp.
The import side of the ledger is similar, with Canada ($6.26 billion), Mexico ($6.03 billion), China ($5.84 billion), Ireland ($3.62 billion), and Germany ($2.63 billion) leading the way in 2023 totals.
The worry is that retaliatory tariffs — the essence of a “trade war” — would disrupt the supply chain, especially in manufacturing, by making parts and materials more expensive. Business costs could rise over time, and consumers would likely wind up paying more.
“Trade is like water; if it is blocked from flowing in one direction, it will flow in another,” said Kurt Bauer, president and chief executive officer of Wisconsin Manufacturers and Commerce. In a Jan. 16 conversation, Bauer noted that while WMC’s members may be largely hurt by tariffs, about one-third support them because they are “tired of being taken advantage of … by some bad actors. We favor free, fair, and reciprocal trade.”
The die is cast for a tariffs debate, and it’s noteworthy that presidents have certain powers to act on their own.
The U.S. Constitution empowers Congress to set import tariffs, but that power has been partially delegated to the president over time for reasons related to national security. The picture is further complicated by the fact the United States is also a member of the World Trade Organization and a player in other trade agreements, which include specific tariff-related commitments.
There could be a lot of negotiation in Washington, D.C., and well beyond before there is broad action on tariffs. In a state such as Wisconsin, which is dependent on manufacturing, agriculture, and increasingly technology products, Trump’s “beautiful word” carries some double meanings.
