Janet Yellen says tariffs would isolate America from the global economy

Janet Yellen, U.S. Treasury Secretary, has warned that raising tariffs against either allies or rivals would isolate the country from global trade, hurting its own businesses and households.

Her remarks were made before the Council on Foreign Relations and are a clear response to presidential Republican candidate Donald Trump who’s been pushing tariffs as a key economic tool in his campaign.

Trump’s plan includes a 10% across-the-board tariff on imports, targeting traditional allies as well as adversaries.

He’s made it clear that this policy would be part of his broader protectionist agenda. During an interview with Bloomberg, Trump called tariffs “the most beautiful word in the dictionary.” He claims that imposing these tariffs would bring in billions in revenue, supposedly to fund tax cuts.

Critics, including mainstream economists, are calling this a tax increase for American households. Trump dismisses these warnings, brushing aside all concerns.

Trump’s love for tariffs

Trump has been loud about his love for tariffs, going as far as to call them his “favorite word.” He’s argued that foreign nations (friends and foes) have been exploiting the U.S. for far too long.

China, Mexico, and even France have been singled out. His complaints have focused on trade deficits and what he calls unfair trade practices. For Trump, tariffs are a way to push back against these perceived injustices.

His plan includes a 60% or higher tariff on Chinese-made goods, which could devastate U.S. households and businesses by increasing costs on everyday products.

According to Trump, this is the only way to get foreign companies to start manufacturing in the U.S. He said:

“All you have to do is build your plant in the United States, and you don’t have any tariffs.”

But Yellen is having none of it. She warned that it would make it impossible for the U.S. to advance its economic and security interests.

According to her, a strong economy depends on partnerships and alliances, no matter what kind.

Global reaction

Meanwhile, Europe is in Trump’s crosshairs, too. He has criticized trade deficits with Europe, calling them “crazy” and vowing to eliminate them if elected.

He’s gone as far as to claim that European allies have taken advantage of America even more than its enemies have. 

In 2018, Trump slapped tariffs on European steel and aluminum, catching the European Union by surprise. The EU responded by targeting politically sensitive American goods, like Harley-Davidson motorcycles and Levi’s jeans, with retaliatory tariffs.

Should Trump win this election, Europe is ready to retaliate again. The EU has prepared a list of American goods to target if Trump follows through on his threats.

His opponent Kamala Harris has labeled the tariff proposals as a direct tax on Americans. She’s warned that the cost of goods would skyrocket, with households footing the bill.

Funny enough, the Biden administration hasn’t been entirely free of protectionist policies itself. The president has continued some of Trump’s tariff policies, and his $390 billion-plus green technology subsidy program has been seen as protectionist.

This program offers incentives for companies to shift investment from Europe to America, which has strained relations with the EU.

The EU prepares for a Trump comeback

The EU is taking no chances when it comes to a possible Trump comeback. According to reports, officials are working on an impact assessment, which will analyze the potential consequences of Trump’s trade policies. 

High labor costs, a shrinking workforce, and slow population growth due to limited immigration make it difficult for the U.S. to benefit from the same strategies that worked for China.

But Trump remains convinced that tariffs are the way forward, saying in an interview, “The tariff, you make it so high, so horrible, so obnoxious, that they’ll come right away.”

Whether or not they’re right is a gamble that could play out in the coming months, depending on the results of the election. 

As Yellen noted, “We cannot even hope to advance our economic and security interests if we go it alone.”