As president in 2018, Trump said, “When a country is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.” He then imposed a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. Trump now says that if he’s reelected, he will impose a 10 percent “across-the-board” tariff and a 60 percent or more tariff on imports from China. “A tariff is a tax on a foreign country, that’s the way it is, whether you like it or not. … It’s a tax on a country that’s ripping us off and stealing our jobs. And it’s a tax that doesn’t affect our country.”
Yes it does. The producers of the goods in other countries do not pay the tariffs, the tariffs are paid by the purchasers of imported goods. Importers pay the tariffs and pass them on to buyers though higher prices. Tariffs are essentially a national consumption or sales tax, and a regressive one at that because it disproportionally falls on the working class while leaving untaxed much of the income accruing to the wealthy. The billions of dollars Trump says tariffs will bring in will actually come from the American public. Studies of the Trump tariffs have found substantial costs for the average U.S. household. The Congressional Budget Office estimated tariffs reduced individual household income by about $1,300 in 2020. A recent Center for American Progress analysis found that a 10 percent tariff would impose an annual consumption tax increase of about $1,500 per household.
Tariffs also fuel inflation. Because of the tariffs, domestic producers can raise their prices to match the higher price of imports. For example, if a $90 tariff raises the price of foreign washing machines by $90, domestic producers can also charge up to $90 more for their machines. No study of the Trump tariffs has found any evidence that foreign producers have lowered their prices to offset the tariffs. On the contrary, study after study has shown that tariffs levied since 2017 have been fully passed on to American buyers.
Tariffs typically provoke retaliation. The 2018–19 U.S.-China trade war shows the tit-for-tat nature of trade wars. China retaliated against the U.S. tariffs by eventually subjecting 58 percent of U.S. exports to an average tariff of 21 percent. Particularly hard-hit were agricultural exports and to a lesser extent capital equipment exports.
In a policy brief from the Peterson Institute for International Economics titled Why Trump’s Tariff Proposal Would Harm Working Americans, the authors note that “the trade-war has not to date provided economic help to the U.S. heartland: import tariffs on foreign goods neither raised nor lowered U.S. employment in newly-protected sectors; retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory U.S. agricultural subsidies.”
The policy brief concluded by arguing that “tariffs should be rejected on both fiscal policy grounds and on traditional trade policy grounds. Tariffs are a regressive and distortionary source of public finance, and they do not help the groups they are intended to help. They instead introduce new economic inefficiencies and collateral damage, and they make it more difficult to work cooperatively with allies and partners to solve our most vexing international problems.”
The 2017 Tax Cuts and Jobs Act (TCJA) was supposed to “pay for itself” by raising revenue through increased growth in the economy. That didn’t happen. Economic data for 2018 and 2019 regarding GDP, investment, and wages was essentially unchanged after TCJA compared to before TCJA. Investment was about the same share of GDP in 2019 as it was in 2015. Investment in equipment and structures, both of which received big tax cuts through the TCJA, essentially stagnated as a share of GDP. Overall tax revenues declined as a share of the economy in each of the years since the tax cuts took effect. Trump believes revenue from tariffs will also help pay for the tax cuts. Tariffs are an inefficient way to raise revenue. Over the past 70 years, tariffs have never accounted for much more than two percent of total federal revenue. The idea that tax cuts will pay for themself is nonsense; tax cuts have never “paid for themselves.”
The TCJA is expensive. According to the Congressional Budget Office, the TCJA will have raised federal deficits and debt by more than $2 trillion during its first 10 years. Worse yet, the TCJA exacerbated the already huge differences in the distribution of income; it made the rich richer and barely helped the poor: households in the lowest 20 percent of income distribution gained an average of about $60 per year, while annual tax cuts for the top one percent averaged more than $50,000.
Excellent article!
With all due respect, Trump has legitimate points to make – Having been in manufacturing for multiple decades, it was frustrating to compete with companies who were able to bring product here whose labor, safety and environmental overhead, were far less than our own(in many cases non-existent) – When we would send product to China, for example, the Chinese added 40% to our price – We built a plant in China just for their market.Read the article in the Economist about how the Chinese avoid American tariffs – it’s known as the Tijuana Two Step – these trade imbalances make it more difficult to compete and cost jobs to Americans. The WTO determines what the tariffs are based upon classifying goods – this has become a political game – If we are to have “free” trade, then let’s not stack the deck. If we expect to have decent wages, benefits, safety, and clean environments, then why bring in products that do not support those objectives?Also, our entire country’s tax system is predicated upon the success of trade and commerce HERE – as consolidation, merges, and expansion of multinational corporations has replaced sole proprietorships, fewer businesses exist in political denominations – this lost tax revenue has impacted our ability to maintain and expand infrastructure. The global initiatives have provided(on one hand)great investment opportunity, however, only those with “extra” money can play that game. Our tax system was based upon 19th century demographics that no longer exist (presuming you live where you work, the next generation stays, & the businesses within the community provide subsidy for infrastructure expectation) We are still managing taxpayer assets as if this is still the case. America has been conditioned to be consumers rather than creators/innovators – we are not as strong as we once were – economically, educationally, or health wise – If you allow other countries to deliver product here that are vastly cheaper because they don’t have wage requirements/safety&environmental regulation, etc.,, you will put your own labor force out of work. Honestly, it seems hypocritical when one expects a decent wage/benefits then does not support this expectation when making decisions about what they buy. On top of this, what about the carbon footprint of goods coming from half way around the world. Covid should have taught us something about supply chains. We have been the architect of our own demise.
Great article Mr Berg. Now maybe you can write an article on how Biden’s 70 executive orders on the border helped secure it.
This article on tariffs was an excellent article and factually written.