Yes Karoline, it is a tax

Yes Karoline, it is a tax

There is now a silly debate going on. Trump’s spokesperson Karoline Leavitt shut down a reporter who asked why if Trump wanted to cut taxes was he raising taxes on American consumers by imposing tariffs. Leavitt was miffed. She said “He’s actually not implementing tax hikes. Tariffs are a tax hike on foreign countries that, again, have been ripping us off,” Leavitt said. “Tariffs are a tax cut for the American people, and the president is a staunch advocate for tax cuts.” The reporter responded that tariffs “don’t get charged on foreign companies, they get charged on importers.” Leavitt of course was wrong and dug herself deeper in a hole by saying that tariffs would increase wages and revenues for Americans and then she said to the reporter “I think it’s insulting that you’re trying to test my knowledge of economics, and the decision that this president has made,”

Well Karoline, he did not insult you . Tariffs are indeed a consumption tax. Tell Trump to think of them as the dreaded value added tax he so despises. Tariffs are collected at the port of entry and are paid by the importer and not the exporter Karoline. Who then pays? The American consumer as imported goods become more expensive. And what is this about increasing American wages and revenues? You are awfully young so probably don’t remember the impact of the Tariff Dude’s tariffs in his first term. The Tariff Dude loves tariffs on aluminum and steel. In his first term he levied a 25% tariff on steel and a 10% tariff on aluminum. He also levied tariffs on China, on solar panels and on washing machines. Studies show a drop in US GDP of $1.5 billion a month, an increase in consumer costs of $51 billion annually and a household tax increase of $625 per year. The prices of washing machines rose by 12 percent. A research paper at MIT found the tariffs had limited positive or negative effects on employment in the sectors protected by tariffs, and hurt employment in other sectors, including agriculture. Moreover, global investments in trade-related sectors declined by a $1 trillion.

I know that press secretaries must back their boss 100 percent even when they are wrong. Leavitt probably knows the truth but cannot admit it. That was especially evident in the last administration, Karoline is likely aware of the consequences of tariffs during Trump’s first term. Trump knows but doesn’t care. He undoubtedly knows that this time around his tariffs will have a larger impact in that they are larger and more comprehensive and target the entire globe rather than just our allies and China. There will be greater costs and global retaliation. Trump imposed tariffs on $380 billion of goods in his first term and now $1 trillion in his second term. Trump’s first term tariffs reduced employment by 142,000 jobs, reduced GDP by 0.2 percent and capital by 0.1 percent while increasing prices. Now imagine the damage that will be done by these tariffs. Estimates point to an equivalent tax of around $2,000 per household.

Now we have silliness going on. The cult of Trump is forced to argue that tariffs are not a consumption tax while the Trump detractors are arguing the opposite. This is one of the few times that republicans are defending a tax increase (albeit while denying it is an increase) while the Trump haters (nee democrats) are arguing against a tax increase for perhaps the first time in modern history. It is a tax increase – perhaps the largest in history – and will have dire consequences if fully enacted. I hope I am wrong. I hope all the economists from Adam Smith to me are wrong. But history and the data say otherwise.

But Trump is no fool. I think it should be apparent that Trump does not just want to equalize tariffs between countries. He is using fentanyl as an excuse for his tariffs on Mexico and Canada. Even if they stopped fentanyl he would still impose the tariffs. He wants to minimize or even end all imports. He wants to force the automobile companies to move production from Canada and Mexico into the states. He wants to end the importation of Canadian electricity, oil. steel, aluminum and lumber. He makes it no secret that he wants to cripple the Canadian economy. I guess he also wants the avocado industry to return from Mexico to California. So yes there will be slower growth, there will be increased job loss, there will be inflation and there will be a recession. Trump is set on building a wall around America. No allies. No alliances. Trump is only going to be around for this term and will be gone. What of the republican party? People have been asking if the democrat party currently in disarray will survive. Well a relevant question is whether the republican party will be able to survive Donald Trump a k a the Tariff Dude, current hero worship aside.