Trump's Tariff Tango: Shrewd or Stupid? By Peter Burrows --
I think President Trump makes a compelling case that the United States has been harmed by unilateral tariffs placed on American goods by, apparently, damn near every country in the world. I had no idea such tariffs were so ubiquitous and had been in effect for so long, and in some cases, had been so damned high.
His retaliatory tariff policy, while causing great consternation around the world, appears to be having the desired effect as many countries are now offering to lower or eliminate their tariffs if we'll do the same. Trump's "shock and awe" tactics may be well thought out or spur-of-the-moment. Probably both.
With Trump you never know. He can turn on a dime and claim that's what he intended to do all along --- and say it with a straight face. That causes heads to explode, which is fun to watch, and while he seems to be enjoying himself now, that will come to an end when he finds out just how much we depend upon China for everyday goods. He's already removed his tariffs on smartphones and PCs from China, which supplies 75 percent of US demand.
If Trump's Chinese tariffs are intended to make us less reliant on China as a matter of national security, such tariffs make sense. In a perfect world there wouldn't be any tariffs anywhere, but we don't live in a perfect world. Tariffs to protect vital industries are necessary if those vital Industries are under partial or near total control of an adversary country, which China certainly is.
However, that fact, plus the fact that China is much more dependent upon selling things to us than we are on buying things from them, may not be important to the Democrats, who will be delighted to blame Trump when shelves start to empty and prices at Walmart and Amazon start going through the roof.
Other than national security, the other reasons Trump touts for tariffs don't make sense. He has said, for example, that tariffs make nations rich. Nonsense. If nations with tariffs get rich, it's despite tariffs, not because of them. The industries and workers protected by the tariffs may get rich, but they do so because in the absence of foreign competition they can overcharge their customers. Whenever government, industry and labor get together on something like tariffs, it's a guarantee that consumers are going to get screwed.
Another stupid idea Trump touts is that tariffs are a good source of revenue and will allow the Republicans to cut income tax cuts. Well, maybe so, but there will be no decrease in total taxation because all that would do is substitute a sales tax, which is what tariffs are IF THEY ARE PAID, for the income tax. Trump's notion that tariffs can replace the income tax shows he doesn't realize tariffs are essentially a sales tax.
Ask yourself this question: If tariffs raise the price of imported products so high that nobody buys them, how much money do the tariffs raise? If you said "zero," go to the head of the class.
A tacit assumption about tariffs is that they are paid by the foreign companies. More nonsense. Those companies collect the tariffs from their U.S. customers and then remit the proceeds to the government. It's analogous to corporate income taxes. Corporations don't pay income taxes, their customers do.
Unlike the sales tax, corporate income taxes are incorporated into the price of the product before the customer gets to the cash register. At the cash register, the customer can see the sales tax imposed by government but not the income tax. Tariffs will be very visible, just like sales taxes. How long will consumers tolerate this?
As a general principle, it may be a good idea to substitute sales taxes for income taxes, but that isn't very likely given that over 50 percent of the wage earners in America pay little or no income taxes. They have no incentive to make such a trade-off.
Which brings up another stupid Trump idea: eliminate the income tax for those earning less than $150,000. This may be a good short-term political move, but in the long run it just means fewer and fewer people have any incentive to reduce the size of government. After all, it's the guy behind the tree who's being taxed.
About now you're probably thinking, "Well, who is giving Trump all this bad advice?" Perhaps nobody. I suspect most of this stuff is Trump's idea. However, Peter Navarro, Trump's top economic adviser, has said that tariffs will raise $600 billion a year and lead to tax cuts while also encouraging consumers to "buy American." Oh, my. Those are mutually exclusive: The more Americans "buy American" the lower tariff revenue will be. No wonder Elon Musk called Navarro a moron.
Trump also says tariffs will motivate companies to move here to get behind the tariff walls, and some companies have announced expansion plans in the United States since the tariffs were announced. Trump claims this was because of his tariff threats, but I think they were going to come here anyway to escape Europe's ridiculously high electricity prices. Trump's energy policies are much more sensible than Europe's.
(If Trump really wants to get foreign companies to move here, lowering the corporate tax rate would be a much more effective way. The ideal corporate income tax rate is zero but try getting that through Congress!)
Another nonsensical idea is that the threat of tariffs will cause Mexico and Canada to beef up border inspections and reduce the amount of fentanyl coming into the U.S. Fentanyl producers will simply move their labs to the US, just like Trump predicted producers would do, though he didn't have fentanyl producers in mind.
Perhaps the most seductive argument in favor of tariffs is that they will reduce our trade deficit. Trade deficits and surpluses are an area that very few people understand, including damn near all our politicians. Whether we have a trade deficit or trade surplus is irrelevant.
For 70 years from 1800 to 1870 the United States ran a trade deficit in all but three years. Then, for the next 100 years, 1870 to 1970, we had trade surpluses. Since 1975 until now, 50 years, it's been deficits. I don't know of any economist anywhere who's ever made the case that surpluses are good and deficits are bad, or the converse.
Not so tariffs. Most economists recognize that tariffs do a lot of harm, especially if one tariff leads to a retaliatory tariff, and then to another and on and on. The Founding Fathers realized this and they made provisions in the Constitution to make sure that states didn't tariff one another.
Article I, Section 9 of the Constitution has this sentence: "No tax or Duty shall be laid on Articles exported from any State." Section 10 expands this prohibition to the rest of the world: "No State shall, without the consent of Congress, lay any Imposts or duties on Imports or Exports except what may be absolutely necessary for executing its inspection laws and the net produce of all duties and imposts laid by any state on Imports or Exports shall be for the use of the Treasury of the United States and all such laws shall be subject to the revision and control of the Congress."
Our Founding Fathers were brilliant!
So, is Trump's tariff tango shrewd or stupid? I think mostly stupid, but if the end result is elimination of tariffs with most of our trading partners and reducing the threat of depending on China for strategic goods, then Trump will have been successful. This is something even Trump haters should wish for.
