It’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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