February 23, 2019

Trump’s Tariffs: The Numbers Are in and They Don’t Lie

by Hal Gershowitz

Comments Below

Of Thee I Sing Heading AuthorsIt’s true. President Trump’s tariffs are generating billions of dollars for the US Treasury.

As we have noted in the past, however, contrary to what the President says, China and other exporters to the United States are not paying those billions. American citizens are. The exporter doesn’t pay a dime of those tariffs—importers do. That is, Americans are charged for the tariffs. It is simply a tax on the people of the importing country.

But let’s be very specific. The numbers are in, so let’s take a closer, unbiased look. We’ll use the actual cost of the tariffs as reported by US Customs and Border Protection (CBP).  Well, CBP reports that, so far, we have assessed and collected $13 billion in tariffs, and over half of that amount ($8 billion) has come from the tariffs we charge on goods manufactured in China. Remember though, that $13 billion comes out of the pockets of American consumers. We are the payors, not the Chinese or other exporters to the United States.

China, of course, has slapped a retaliatory tariff on certain American goods, mostly certain agricultural products. Well, keen not to lose the support of American farmers, President Trump has instituted a support program for those farmers who are being hard hit by the Chinese retaliatory tariffs. The cost of our aid to our farmers who are being hurt by the Trump tariffs—an estimated $12 billion. That cost to the US treasury is approximately equivalent to the revenue (Americans are paying) that President Trump boasts is flowing into the US treasury.

Now, let’s give President Trump the benefit of the doubt and assume that when he stated in a January 3rd tweet that “the United States Treasury has taken in MANY billions of dollars from the tariffs we are charging China and other countries that have not treated us fairly,” that he was stating what he believed was the truth.  After all, a day later he doubled down, stating to the press that, “we’ve taken in billions and billions of dollars in tariffs from China and from others.’’

What are we to take away from this remarkable misstatement of fact? Either that President Trump was knowingly being untruthful, or that he was unknowingly being untruthful. That is, he was either deceitful or ignorant of how tariffs worked, and on whom the burden of tariffs fall. There are no other explanations. He was either lying or ignorant, and we really suspect he was, well, just ignorant.  Given the implications of a possible trade war, however, either alternative is rather depressing. In fact, virtually all economists believe depressing is the economic impact we can expect from trade policy that rests upon the shaky foundation of tariffs.

So, we Americans are paying the cost of the tariffs in the price we pay for all goods subject to the tariffs.  For example, the Ford motor company says their products will be burdened this year with $700 million of superfluous, unnecessary costs—costs fellow Americans who buy Ford products will have to pay. Likewise, General Motors says their costs have already increased by $1 billion since the tariffs were imposed.

These are serious costs being imposed on American business and, of course, being passed on to American consumers. According to a spokesman for The Trade Partnership, an economic consulting firm, US businesses (and their customers) paid, last October, an extra $2.8 billion for these Trump tariffs in that single month alone.

The invariably pro-business and generally pro-Republican US Chamber of Commerce put it very bluntly. “Let us be very clear: Tariffs are taxes paid by American families and American businesses-not by foreigners.”

So, what’s the point?

We, and the rest of the world, are at a point in a long ten-year period of economic growth where the recovery from the last recession is growing long in the tooth. Under the best of circumstances, recessionary pressures would surprise no economist. As tariff wars expand, consumption, sooner or later, contracts. That’s the lesson of the notorious Smoot-Hawley tariffs of 1930 that threw the world into one of the deepest recessions in recorded history. We believe tariffs are poor trade devices under any circumstance. Embarking on a tariff war at this stage of a long economic cycle that could well be running out of steam is, in our opinion, inept, if not incompetent economic trade policy.

While contraction will hurt China and every other country impacted by the higher prices tariffs impose, engaging in a world-wide game of economic chicken to see which country relents first is simply reckless, if not thuggish.

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10 responses to “Trump’s Tariffs: The Numbers Are in and They Don’t Lie”

  1. Charles Anderson says:

    Hal,
    This essay is one of your best, straightforward unbiased information regarding yet another example of the incompetence of the Trump administration. The best that can be said of Trump’s tariff policy is that it is at least not illegal. Unfortunately most Trump supporters will not read your essay & continue on blindly supporting him. Perhaps an essay on how people can be convinced to vote against their own best interests is in order.

  2. Leonard Sherman says:

    If what you say is true , then figures never lie, only liars lie

  3. Ben Donenberg says:

    Where does the Secretary of Commerce land on this matter of tariffs?

  4. Hal Gershowitz says:

    In Response to Ben Donenberg: Commerce Secretary Wilbur Ross supports the tariffs on the basis of national security. National Security is, of course, President Trump’s justification for imposing tariffs without the inconvenience of asking Congress to act.

  5. Marc slavin says:

    We are a country of consumers. We should stop buying so much crap from China to start. Everything you buy in Walmart is made in China. So it’s our fault. We create the demand and China responds and feeds our appetite for stuff. The tariff is another issue in itself.

    • Our response to Perry and to Marc Slavin: First, I thank them both for taking the time to read, and to comment on this essay. They are both loyal readers of our essays for which we are most appreciative.
      With respect to Marc Slavin’s comment, his point that our consumption contributes to our balance of trade deficit with China is, of course, valid. Any nation that consumes more than it produces will, by definition, have a negative balance of trade. That in and by itself should be of no great concern. Where we differ is that he thinks that is a bad thing, and we think it is nothing more than a pretty robust economy comprised of consumers that buy much of what the United States and the rest of the world produces. International trade is no longer a mercantilist enterprise, a zero-sum game, in which whoever sells more wins and whoever buys more loses. We live in an interconnected world. We send dollars for goods to China much of which China uses to buy what it needs from various nations, which then can use those dollars to buys goods from still other nations including the United States. While the United States has been shifting rapidly from a manufacturing-based economy to an information-based, service-oriented economy with growing emphasis on artificial intelligence, we still have an enormous manufacturing presence. While manufacturing employment is down, we still produce more than any other country except China. The value of our manufacturing output in the first quarter alone last year was a record high $2.0 trillion. We also export services, nearly a trillion dollars’ worth last year, which is a good thing given that services account for over 70% of US jobs.
      With respect to Perry’s comment, we are not blaming President Trump for past failures. If anything, we are blaming President Trump for dealing with 21st century trade issues in an unproductive, 19th century, mercantilist way. His trade tutors seem to be Mr. Smoot and Mr. Hawley, and we know how their thinking worked out.
      Finally, America has a much bigger deficit to worry about than our trade deficit, which really shouldn’t be much of a worry. We will soon be borrowing a trillion dollars a year to finance a big part of our budget (mostly military and entitlements). Fortunately, other nations (ironically, China primarily) are, today, healthy enough to lend us what we need, and because they are eager to lend to the United States, our interest rates are, thankfully, very low.
      What goes around comes around.

  6. Perry says:

    Actually Trump is known to be a “Free Trader” but he
    realizes many things of which have gone wrong in the first place.

    The trade imbalance and the restrictions on American goods to
    China where there is a huge trading opportunity in a nation of
    over 1 billion people.

    The Tariff war needn’t have started but was truly brought on
    by the Chinese protecting their own industries,

    As it is today, China is quickly becoming not just an industrial
    giant but an economic threat to America’s superiority which is
    rapidly declining and certainly not due to this POTUS. Past
    policies greatly helped in this regard., all the while thinking
    China would become a great ally of the US. They were given
    access to our schools,technology and encouragement to take
    leadership thinking they might become an ally against Russia.
    Let us not blame Trump for past failure.

  7. Sandy Woodson says:

    Hi Hal,
    I’ve read so many comments about President Trump, mostly contentious and generally not helpful in understanding the underlying issue or problem, that I sometimes wonder if resolutions are to be found to anything. I realize that answers cannot be “simple” because the issues they address are so complex, but it would be fascinating to hear what you would do specifically were you President of The United States to resolve the major obstacles the US is facing today. Many thanks.

    • Response to Sandy Woodson: First, thank you for commenting on this essay. I make no pretense of having the answers to the major obstacles the US is facing today. That’s just one of the many reasons I have not run for President. That being said, I know what I would not do. I would not ignore briefs prepared for me by those entrusted with the task of advising me. I would not ignore the lessons of history. I would not, knowingly, mislead, deceive, or lie to the public. I would not shoot (or tweet) from the hip with respect to complicated issues. I would not ridicule those who do not agree with me. I would not attack at every opportunity the press whenever I am criticized by correspondents or commentators who are critical of my policies or behavior. I would not so much as hint that America is prepared to turn her back on her most important allies. I would not embrace policies that have generally failed in the past. I would not find reading relevant books or other material prepared for me to be a waste of time. I would not publicly attack or intentionally humiliate those who work for me. I would do nothing that brought ridicule, shame or disrespect to the oval office.

  8. Irwin yablans says:

    Bravo Hal. A comprehensive summary. What is astonishing is that there are so many seemingly educated, intelligent people that still refuse to acknowledge the harm this man has done to our country.
    I used to believe that the soul of America was intact. Now I am not so sure. The next two years will determine whether or not the damage is irreparable.

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