Trump's tariff is a huge tax increase hiding in plain sight for lower and middle classes

Trump's tariff is a huge tax increase hiding in plain sight for lower and middle classes

Donald Trump made some news this weekend when he announced via Twitter (because apparently we are in for four years of presidency one tweet at a time) when he announced that there will be a 35% tariff on US companies that move production overseas and then re-import it to the United States for sale. He's also pledging to put a 45% tariff on imports from China.

Set aside for a minute here the punishing retaliation the rest of the world can dole out. Forget for a minute that China is already pushing forward its Asia-Pacific free trade pact in light of Donald Trump's promised withdrawal from the Transpacific Partnership, which will open up not just a huge swath of the world's economy much larger than that of the US to the Chinese but also the fastest growth region in the world. Ignore, for a minute the fact that Canada has just lifted visa requirement for Mexican nationals. Pretend for a minute that it doesn't matter that countries like China, India and Brazil have growing middle classes that not only outnumber but will soon outspend US consumers with room to spare.

Consider simply this: Donald Trump has promised to do this by giving US corporations huge tax cuts. His administration is intent on producing it too, as evidenced by a $7 million bribe his VP-elect just gave to Carrier to keep about 700 jobs in Indiana (that's $10,000 per job bribe). But giant corporate tax cuts create giant problems for the federal budget. Some of that hole is planned to be filled in by Paul Ryan's plan to eliminate Medicare.

The rest? The rest - or the part of the rest that isn't planned to come from borrowing from the Chinese (you see how this gets a little complicated, don't you?) to deficit spend - comes from, of course, Donald Trump's beloved American worker. Researchers at Beacon Hill Institute at Suffolk University found that, were the Trump tariff to be applied uniformly against US trading partners,

...the results would be truly catastrophic for the poor. It would be as if the United States imposed a new tax of 53% on the lowest 10% income decile and a 20% tax on the next lowest decile. It would be equivalent to an 11% flat tax on the after-tax income of U.S. workers. 

An flat tax on the "after-tax income" is otherwise known as a sales tax.

This is nothing more than a thinly veiled proposal for what Republicans have done as their prescription over and over: give the rich and the corporations a big tax cut, and make up for it by heavily shifting the tax burden to the poor and middle class, many of whom are Trump's darling "white working class" voters who were duped into believing that Trump's tariff would actually be something good for them.

But Trump's tariff wouldn't stop at taxing the living daylight out of poor and middle class people. It would shrink the US economy by a half a trillion dollars a year. That's a 3% shrinkage.

As I have reminded readers here time and again, the 7 billion people who live outside of our borders are not longing to go back to the time when American manufacturing was booming and more than half the world's population was living in abject poverty. China's middle class is already bigger than the entire working population of the United States, and in less than two years, China's online spend will outspend the rest of the world combined.

Combine this with these factors: wages in China have risen so fast that labor costs no longer make China competitive against US manufacturing. What does? Global sourcing of components and Chinese factories' ability to command massive armies of workers. Assembling all iPhones in the United States would only add about 5% to its price, for example, but US factories simply lack the capacity to run large scale operations. 150,000 workers in China work on the manufacturing of the iPhone in two factories. There are no factories in the US with a capacity of more than 60,000.

Even assuming we could build those factories, sourcing all components and not merely assembling - which is what it would take to avoid a Trump tariff - the iPhone domestically would shoot up its price to roughly $2,000. Does anyone think Apple will be willing to increase the prices of its products by roughly 150% just to avoid a tariff that it could pass along to the customer for just an 11% jump in price?

According to the Suffolk study, Trump's tariffs would also plunge US exports by 78% to Trump's target countries, even before those countries take any retaliatory measures, which they are bound to.

All of this would happen - the plainly hidden tax increases on everyone but the superrich and multinationals, the suffering of US export, the economic pain of a trade war - without any real benefit to American manufacturing jobs. Because... here's a secret... outsourcing is not the root cause of manufacturing job losses, and it hasn't been for more than a decade. 85% of manufacturing job losses are now due to technology - automation, machines replacing simple assembly line, and more recently 3D printing - replacing workers, not globalization. Unless Trump would like to make America into Amish country, I don't see that changing anytime soon.

By the way, this is a basic fact that the Left would do well to remember as well, and not just Trump.

To sum this all up, there is no upside to Trump's tariff, and a huge downside to the very people Trump is claiming to be helping with his proposed tariffs. His tariffs will set off a trade war, encourage the rest of the world to move on without the United States, essentially do nothing to reverse the slump in low-skill manufacturing (nothing really can), and increase taxes massively on the poor and the middle class.

Good luck with that.



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