In this post, I want to discuss a topic that doesn’t get tons of attention, but I believe as the year goes on were going to hear more and more about it. I want to discuss Tariffs, which are simply a tax on imported goods. And more specifically I want to dive into Trump’s Tariff proposal, as well as myths around Tariffs and how this will affect Americans.
To begin, during many of President Trump’s campaigns he has been discussing his plans for Tariffs if elected. Simply put he and his advisors are stating they would place a 10% minimum tariff on all goods and a 60% tariff on anything from China. And many businesses, who rely heavily on imports, are starting to plan for this.
Now, as Trump is proposing this, there is considerable critcism already coming his way, mainly by the mainstream financial media.
Why are they criticizing the proposal?
In sum, they are stating that the higher Tariffs will ultimately be passed onto consumers. But this statement is false and I’m going to give several reasons why.
First, during president Trump’s first term higher tariffs were imposed. When news of this broke, the financial media and economists lost it. Yet, nothing happened. Inflation was at record lows and the economy was booming. The effect was so pronounced that when President Biden took office, he only rolled back a few of the higher Tariffs that Trump put into place. The fact is the Biden administration recognized this and knew it was smarter to just leave these in place.
It should also be said that the assumption of Americans going broke is based on models, not factual data.
Now that Trump is proposing big tariffs, larger than before. Once again, economists and others are starting to criticize the idea.
Large tariffs have several advantages that rarely get mentioned.
The first is that it lowers our massive trade deficit. Trade deficits, which is when imports exceeds exports, hurt real wages. Overseas companies have lower wages and in order to compete , American companies are forced to lower american wages to be competitive. Jobs are lost and workers who should be working these manufacturing jobs or other quality jobs are being relegated to low paying jobs.
A second advantage is that higher tariffs boost domestic production. This is somewhat similar to the first reason, but from a national security perspective, manufacturing critical items like medicine and microchips ensures in an economic collapse we will be able to have a supply.
A third advantage is that higher tariffs help small businesses. The majortiy of the the companied that benefits off low tariffs are large multinational corporations. They are allowed to employ staff overseas and set up manufacturing plants. This cheap labor and cost of capital allows them to dismantle small businesses.
Historically speaking, the United States gained much of its revenue from Tariffs until 1913. That year the income tax came about. Since then Americans have lost more and more money to income taxes each year.
It should be said before then the government tried having an income tax and it was wildly unpopular. The rate was only around 2% and only the wealthy paid it.
One final argument is that high tariffs allow monopolies to occur. However, this isn’t the 1900’s with US steel.
Today in the US only around 30% of goods imported have tariffs . Of these, they pay extremely low tariffs, the lowest in history.
It’s time for a change.
