According to recent public statements, Donald Trump’s four favorite words are: god, religion, love and tariffs.
This administration suggests that because the United States is the biggest, strongest etc., it can impose its will on other countries regarding drugs, migrants, guns and the balance of trade. In doing so it will curtail these problems, enrich the country and reduce the national debt. But the three scenarios which follow leave me wondering if tariffs are really what the president thinks they are.
1. If countries do comply by reducing the flow of drugs etc, and tariffs are removed, there will be no tariff revenue to reduce the debt.
2. If countries don’t comply, there is no change in the drug or migrant problem but consumers pay higher prices and inflation increases. As prices increase, sales decrease reducing tax revenue.
3. If countries reciprocate, then domestic manufacturers have fewer export markets due to their prices making them less competitive. Exports represent about 20 percent of their total sales. If they must export because they have saturated the domestic market, creating more manufacturing makes no sense.
Tariff revenue is paid by the importer and collected at the border. It goes directly into the treasury. The retailer must decide whether to increase prices to recover the costs or to absorb them and reduce profit. Studies suggest most will pass the cost along to the consumer. Sales tax revenue goes down as inflation increases.
The president claims that his election was a mandate on his promise to lower prices and reduce inflation. But tariffs appear to have the opposite effect. Could it be that tariff revenue will be used to buy a tax reduction for the wealthy rather than a means for reducing the national debt? It is unclear how this makes America greater than it already is.
