Another day, another crazy decision by Trump. The newest contribution to the steadily growing list of illegal, improper, or inadvisable moves by the Trump administration is tariffs on goods imported from Canada, Mexico, and China.
Before I describe how dumb this is, let's get one simple fact straight, something that Trump either doesn't understand or lies about.
Tariffs imposed by the United States are paid by the American companies importing the goods, not by the exporting nation or companies doing the exporting.
Since those American companies either have to pay for the full cost of the tariffs themselves, or pass some of the cost on to consumers via higher prices, this means that a tariff is a tax. It isn't free money, no matter how often Trump praises tariffs as a way to increase federal revenues.
Yes, the money raised by tariffs goes to the federal government. But that money is a tax increase on the American public, either directly through higher prices or indirectly if paid by the companies importing goods subject to tariffs.
This fact needs to be screamed from the rooftops by journalists and Democratic officials.
Because Trump's decision today to impose a 25% tariff on goods imported from Canada and Mexico (aside from a 10% tariff on Canadian oil) and a 10% tariff on imported goods from China, is a large tax increase -- no matter how Republicans try to spin this.
Those tariffs go into effect next Tuesday. Likely this will happen, though when it comes to all things Trumpian, one can never be sure what whim will emerge from the often incoherent brain of our newly elected president.
There are three possible reasons Trump is imposing the tariffs: (1) To raise money that will help offset the cost of extending and expanding tax cuts that mainly benefit the wealthy; (2) To put pressure on Canada, Mexico, and China to comply with stuff Trump wants them to do; (3) Protect American industries from foreign competition.
I suspect that #1 is the main reason Trump is going ahead with tariffs. There's no way federal programs can be cut sufficiently to offset the cost of the tax cuts he wants. At least, not without stimulating a revolt by American citizens who like those programs.
So tariffs are a (thinly) disguised tax hike that will make it easier to justify the cost of the Republican tax cuts. Obviously it makes little or no sense to pay for a tax cut with a tax hike, but making sense was given up by the Republican Party when it became the Cult of Trump.
There'd be some justification for the tariffs if they truly were being used as leverage to get Canada, Mexico, and China to do things that benefit the United States. However, Trump says that he won't consider cancelling the tariffs until the supply of fentanyl into the United States is drastically slowed by those countries.
Problem is, very little fentanyl crosses the Canadian border, and both Mexico and China say they're doing about the best they can to reduce fentanyl production and trafficking. All three countries have a reasonable point when they say that demand for illicit drugs in the United States is the real cause of the fentanyl problem.
Protecting American industries and manufacturing is a laudable goal when an essential product is primarily imported from a country that isn't friendly to the United States. But Mexico and Canada are our allies. They're next door to us. It's crazy to single them out for 25% tariffs, especially since they are two of our three largest trading partners, China being the third.
Of course, those countries can retaliate by imposing tariffs on goods imported from the United States. This already has started to happen.
Mexico and Canada immediately vowed to impose tariffs of their own. The Canadian prime minister, Justin Trudeau, announced retaliatory tariffs starting with 25 percent tariffs on approximately $20 billion worth of U.S. goods on Tuesday, with $85 billion more to follow within three weeks.
...The nation’s commerce ministry said China would file a case against the United States at the World Trade Organization and also vowed unspecified “corresponding countermeasures to firmly safeguard its rights and interests.”
The burden on American consumers promises to be large. Tariffs will result in higher prices and more inflation, according to a CNN story.
Trump’s proposed tariffs could add $272 billion a year to tax burdens, according to Karl Schamotta, chief market strategist at Corpay Cross-Border Solutions. The Peterson Institute has estimated Trump’s proposed tariffs would cost the typical US household over $2,600 a year.
...mainstream economists largely agree that tariffs cause inflation. That’s because importers — not the countries exporting the goods — pay the tax, and they typically pass that cost on to consumers in the form of higher prices. New research from the Peterson Institute for International Economics suggests Trump’s aggressive tariff campaign will force American consumers to pay more for practically everything — from foreign-made sneakers and toys to food.
Because of the risk that Trump's tariffs will rekindle inflation, the Federal Reserve will be reluctant to cut interest rates, which still are at high levels, with a 30 year mortgage hovering around 7% even after several rate cuts last year by the Fed.
And I won't be surprised if the stock market declines next week. Trump may love tariffs, but most corporations and investors don't. Trade wars tend to be losers for everyone involved. A Politico story says:
Economists warn new tariffs could hurt the U.S. economy, rattle the stock market and frustrate Trump’s desire for the Federal Reserve to further lower interest rates.
The combination of a 25 percent tariff on Mexico and Canada and a 10 percent tariff on China goods could cause U.S. economic output to decline by 1.5 percent in 2025 and 2.1 percent in 2026 as higher prices dampen consumer spending and business investment, said Gregory Daco, chief economist at EY-Parthenon, a division of the accounting firm Ernst & Young.
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