The global economy that will greet President-elect Donald Trump’s next term is much different than the one that existed in his first term, potentially putting the U.S. In an advantageous spot for his tariffs, a top Ivy League economist said.
In a New York Times op-ed on Friday, Eswar Prasad, senior professor of trade policy and professor of economics at Cornell University, pointed out that the U.S. Is strong while the rest of the world is in “a deep economic funk,” enabling it to weather a tariff war better.
“No matter the virtues of these policies, they could end up hurting other countries a lot more than they hurt American consumers, making the United States look like a winner,” he wrote.
Trump made tariffs part of his core message for his reelection bid. On the campaign trail, he vowed to impose duties as high as 20% across the board while singling out China with duties of up to 60%.
After winning the election last month, he threatened that one of his first executive orders would be a 25% tariff on Canada and Mexico if they didn’t curb illegal immigration and drug trafficking, plus an additional 10% tariff on China.
Top CEOs have already warned that tariffs would translate to price hikes for consumers. And bond yields have surged as the prospect of stickier inflation prevents the Federal Reserve from lowering rates faster.
But Prasad noted that unlike other top economies, the U.S. Has demonstrated strong productivity growth, which could lessen the blow of tariff-driven inflation should that improvement continue.
Tariffs will also boost the dollar, making U.S. Exports less competitive while drawing more investment from the rest of the world, he added. In addition, a stronger dollar makes imports less costly, easing the impact of higher prices for foreign goods.
Meanwhile, Prasad said China has weakened sharply since Trump’s first term and his initial round of tariffs. As consumer demand remains anemic amid a real estate crash and debt woes, the world’s second-largest economy is now more reliant on exports, which would suffer from even higher U.S. Tariffs.
Elsewhere, Europe’s economy looks even worse, while Japan is stuck with low growth, and even India is cooling off.
As a result, Beijing’s top trading partners are poised to impose barriers that would prevent cheap Chinese exports from flooding their economies. And Trump will likely seek to close loopholes that allow China to dodge tariffs, such as diverting exports to countries like Vietnam and Mexico before reaching the U.S., Prasad predicted.
“The days of Chinese companies like Shein and Temu sending packages to the United States of small, individual purchases that are priced low enough to avoid being subject to tariffs are almost certainly numbered,” he said.
To be sure, China can retaliate and has already restricted U.S. Access to rare-earth metals that are critical to the tech sector.
Meanwhile, some members of Trump’s economic team have signaled less of a hard-line stance on tariffs, and “first buddy” Elon Musk has business ties with China as it represents Tesla’s top foreign market, Prasad noted.
How far Trump will go is also uncertain as he could declare mission accomplished without following through completely on his tariff threats. Either way, the U.S. Has leverage, and the rest of the world must adapt.
“The Trump tariffs will certainly force other countries to be creative in dealing with him,” Prasad said. “Given their economic realities, they may have few other options.”