The 'impossible trinity' at the heart of trade strategy

IF YOU'VE spent hopeless hours searching for coherence in the White House's trade strategy unveiled on Wednesday - a day US President Donald Trump called "Liberation Day" - don't fret because there is none to be found.

- ROBERT BURGESS

To date, Trump has put forward three primary objectives of the levies.

The first is raising tax revenue to help close the federal budget deficit and pay for an extension of the Tax Cuts and Jobs Act (TCJA) of 2017 which is due to expire at the end of the year.

The second is to bring back to the US manufacturing that has migrated overseas, igniting a new "Golden Age" of America. The third is to achieve foreign policy goals.

Each one of those objectives would be hard enough to achieve on their own, but all at the same time as Trump suggests? Inconceivable would be an understatement.

"The impossible trinity of tariff objectives" is how the economists at Morgan Stanley put it in a research report.

"Tariffs would have to be much higher, and more persistent" than what the White House has floated to be a "significant source" of tax revenue, they concluded. And that's taking into account the notion that the US tariff rate will rise to an average of somewhere between 10% to 15%, the highest since the 1940s and up from around 2.2% currently.

Indeed, the Budget Lab at Yale has done extensive work on the impact of tariffs. It estimates that based on what has been proposed, tariffs on imported goods would rise around $3.52 trillion between 2026 and 2035 (paid for by US importers and, ultimately, consumers and not the exporting countries). A big number, but far short of the $4.6 trillion deficit expansion through 2034 that the Congressional Budget Office projected would come from extending the TCJA, Trump's signature piece of legislation in his first administration.