Get a grip about Trump’s tariffs, this is only 1% of the economy

It’s time for Wall Street to get a grip.

The Trump tariff policies are a calculated gamble that the threat of tariffs can fundamentally remake the global economy and re-tilt it in the direction of the United States — and away from China and other beggar-thy-neighbor countries.

But whether they work or not, Wall Street elites have convinced themselves that these tariffs are worse than the pandemic that stopped the entire economy or the 2009 economic crisis that put 10 million people out of work.

And so far, nothing has happened. It’s all speculation about what could happen.

Wall Street regularly overreacts on both the upside and the downside. However, in judging the potential impact of the Trump tariffs, the first place to look is the basic math.

These tariffs, even if enacted, would be only a small part of the US economy — no more than about 1% of our economic activity.

And if they were enacted, that money would not go into corporate profits but into the US Treasury, about $300 billion a year.

The United States has an annual GDP of $28 trillion. We are the world’s largest importer, but that’s because we have the No. 1 economy in the world by far.

Relative to our size, imports are a much smaller percentage than most people think: We import about $3 trillion in goods from other countries each year, or only about 11% of our economy.

Mostly these imports are a combination of finished goods and parts we incorporate into other goods (such as the windshield wiper on the car).

Contrast this with an island like Aruba that imports 77% of its economy, or Albania which brings in 44%.

A 20% tariff on half of all the goods we import would amount to just about 1% of the US economy.

Note that we are running a $2 trillion budget deficit, nearly three times the trade deficit. 

We have endured 20% inflation under former President Biden.

The so-called Inflation Reduction Act cost trillions of dollars.

These were way bigger shocks to our economy than these tariffs.  

We export about $2 trillion in goods, mostly raw materials such as soybeans and oil. These are generally raw materials that other countries need — and it is harder for them to get along without oil and food than for us to reengineer the manufacturing of finished products.

That’s why a lot of countries are lining up to make new trade deals and lower their tariffs.

China has the most to lose in a trade war. It exports about 20% of its economy, so exports are a much bigger deal for the Chinese than for us.

They have tens of millions of people employed in exports, and they can’t afford to lose all those jobs.

In general, the American public is giving Trump room to see how his policies are going to work out. His ratings are holding up in recent polls and people are mildly supportive of reciprocal tariffs — they understand that it makes sense to have fair trade.

In particular, they believe that China is taking advantage of the United States with unfair subsidies to its industries.

Wall Street is giving Trump the full Liz Truss treatment. That’s when the British markets reacted violently to the then-Prime Minister’s not-so-novel idea of cutting taxes to stimulate the economy.

Under the parliamentary system, the Conservative Party pulled back and abandoned Truss’s policies. They put in a new prime minister who believed in austerity, and the markets were happy — but the people threw them out of office in a landslide after the economy went nowhere.

Truss likely had the right idea, but the Street wouldn’t let her implement it. Trump, in contrast, is standing up to the Street, telling it to hold on here.  

Wall Street hates uncertainty and change. It’s the nature of these markets: Fear, uncertainty, and doubt drive them.  

And Trump loves these things, particularly as negotiating tools.

So, it is not a surprise for the two to clash — but Wall Street has no monopoly on what’s the right policy.

If Trump succeeds in getting scores of countries to renegotiate their trade deals with the US and lower overall tariffs, then he will have been successful.

We will have to wait and see how his policies come out — and Wall Street needs to put all this in proportion.

Mark Penn is CEO of Stagwell, INC., and Chairman of the Harris Poll. He served as a key adviser and pollster to both Bill and Hillary Clinton from 1995 to 2008.