Of course you knew that. The government collects the tariff from the importer and part if not all of that cost is passed on to you. Or as Warren Buffet says, “The tooth fairy doesn’t pay ‘em!”
But both Donald Trump and his special trade advisor Peter Navarro tried pitching the Trump Tariffs as tax cuts – at least until the editorial board of The Wall Street Journal delivered this smack-down: “George Orwell, call your office. In the real economic world, a tariff is a tax.”
How Tariffs Work
Importers are responsible for paying tariffs to the government. The importer can eat the cost, pass it on to customers, or get the foreign manufacturer to absorb it by charging less for the goods.
During Trump’s first term, most of the cost of the tariff charged on goods from China was passed on to customers. Unless you believe in the tooth fairy, you’ll understand that will be happening again. Only this time it will be worse.
Why Tariffs Will Hit You Harder This Time Around
The Trump Tariffs are much higher than during his first term.
Even after Trump temporarily lowered tariffs on China and paused them on other countries, JPMorgan Chase CEO Jamie Dimon warned that the current levels are “pretty extreme.” The nonpartisan Yale Budget Lab estimates that consumers will face an overall effective tariff of 17.8%, “the highest since 1934.”
Not surprisingly, importers are already signaling that the Trump Tariffs will force them to increase their prices. Americans will pay the price for Trump’s folly – and the tens of millions of Americans who live paycheck to paycheck will be hit the hardest.
Trump Tariffs and the Trade Deficit: Wacky Calculations and an Embarrassing Admission
We run a trade deficit with most of our trading partners. That is, we buy more goods from them than we sell to them.
Trump claims other countries are “cheating us” by charging a higher tariff on our exports than we impose on theirs and maintains the Trump Tariffs will fix that. But the tariff figures he cites bear no relationship to the actual tariffs other countries charge us. They do not even enter into his calculations.
Instead he derives his figures by dividing the value of our trade deficit with each foreign country by the value of that country’s exports to the United States, a methodology that has been characterized as “logical only in the head of President Trump” and that wildly overstates the real tariff. For example, while Trump claimed Europe is charging a 39% tariff on American goods, the World Trade Organization calculated the figure at 4.8%, based on announced rates.
Trump also claims that raising tariffs on foreign goods will reduce our trade imbalance. But that only happens if Americans foot the bill for the Trump Tariffs.
Here’s why. Tariffs can lower trade deficits but only if they increase the price of foreign goods sufficiently to discourage Americans from buying them. Otherwise consumers will continue to purchase the foreign goods and the tariff will have no impact on the trade deficit.
In short, the Trump Tariffs are either a tax increase or a meaningless exercise.
