Trump's Terrible Tariff Tease

...and the nonsense of it all. Here's the facts.

Reporting on California politics for Capitol Weekly, one of my beats was Donald Trump and his interaction with California, a state he clearly hates. Most of my focus was on fire and water, and Trump’s nonsensical but dangerous rambling on the subject. As a journalist I was tasked with two things: Taking Trump’s words seriously and analyzing his comments for truth, accuracy, and sanity. Time and again, I found that Trump would find a genuine issue, exaggerated it into a “serious problem that no one was dealing with,” positioned himself as the savior (or “protector”), and then proposed solutions that referenced real things but were twisted into insanity and nonsense.

With fire, Trump identified one of the causes of California’s wildfires as excess fuel, dead trees left to rot on the forest floor, something which is certainly a problem, though not more so than hotter summers and dryer winters due to climate change, and housing development past the forest edge and into the woods. Trump’s solution to tree litter? Rake the forest. That’s it.

On water, Trump insists that California has plenty of water available, pure nonsense. In the past, he claimed that California wastes water by sending it to the ocean, a bizarre accusation that shows no understanding of hydrology, climate, or nature. Lately, he’s promised that, if elected, he’s going to give California “more water than almost anybody has.” How? He’s going to turn on the “large faucet” that will send water from the Pacific Northwest to California. Faucet? How come no one has turned it on already? Here’s the answer: The large faucet does not exist, nor do a lot of small faucets or a viaduct system that would enable water to be sent from Washington and Oregon south via faucet.

No matter, Trump insists that his imaginary faucet is real and, that once it gets turned on, not only will farmers and developers have enough water, but we will have enough water to stop wildfires by “dampening” our recently raked forests.   

Again, Trump starts with real problems – wildfires, water shortages – and “solves” them with nonsensical and insane “solutions.” It would be easy to ignore this crap as the rantings of a demented man, but Trump is not just some social media nutjob. He’s the former president of the United States, trying to get another whack at the job, with a very large megaphone. Because of his influence, his nonsense finds its way into real debates about real problems, wasting time and resources.

“Turn on the faucet! Wait, there is no faucet? Why isn’t there a faucet? We need a faucet! What? The faucet needs pipes and we don’t have pipes that go from Washington to California? Build the pipes! How do we get the pipes over mountains? Move them!” and so on. Meanwhile, California goes into drought and burns while we argue about moving mountains. That is the danger of Donald Trump’s nonsense.

Which brings us to tariffs. The “problem” that Trump is identifying is that the United States has a trade deficit with other countries. We buy more stuff from them than they buy from us (we’re being “ripped off,“ Trump says), something that can be a problem, can also be a sign of a healthy economy, or a bit of both – a lot depends on how large the deficit is, what sectors the deficit occurs, who is being impacted by the deficit, what conditions have led to the deficit, etc. And none of that is black and white.

The United States buys a lot of cheap stuff from abroad, everything from electronics manufactured in China, clothing made in Southeast Asia, and produce grown in Latin America. The stuff is cheap because the export countries are also low wage nations. Those low wages help suppress wages in the United States. At the same time, low priced imports are necessary for American workers, people who can’t afford to buy higher priced American-made goods. This is the global system of advanced capitalism.

Trump’s solution to this economic clusterfuck is to throw tariffs on most all imports (“10% to 20% tariff on all $3 trillion per year of imported products, with a 60% rate for products from China’”), a “solution” which will net the government “trillions” that can be spent on universal childcare, more tax cuts for the rich, a “better” healthcare system, Trump’s wall, “protecting women at a level they’ve never seen before” (including eliminating loneliness and depression), and building the PNW-to-CA plumbing system (none of which he’s shared concrete plans for). Trump says that the tariffs will lower costs for the consumer and beat inflation, while leading to more American jobs, no more deficits, and a wizz-bang economy. And when China and Europe – Trump’s main targets – feel the pinch, they will beg Trump to make them a deal.

There’s a lot of nonsense in Trump’s claims, but central to his scheme is one gigantic piece of bullshit: The countries who are subject to tariffs will pay the tariffs (shades of Mexico will pay for the Wall). No matter what Trump or anyone else says, that is not how tariffs work. A tariff is like an import tax, a tax that is paid by the importer, not the exporter. This is how it works:

American Import Co. (AIC) – a distributor based in Macon, Georgia – imports 100 thingamajigs from China, paying a Chinese firm $1 a pop for them. The Chinese firm ships the thingamajigs and AIC wires the firm $100 (plus shipping costs). Because Chinese imports are hit with a 60% tariff, the US Customs & Border Protection Agency, working for the Commerce Department, braces AIC for $60. So, it’s the US based import company that pays the tariff, not China or the Chinese exporter.

Thanks to the tariff, those thingamajigs now cost AIC $1.60 instead of $1 each. Before the tariff, AIC would resell the thingamajigs to the American consumer for $2 a pop, making about $100 profit on each lot of 100. Thanks to the tariff, AIC has three choices: 1) Eat the tariff and continue to sell imported thingamajigs at $2 each, 2) Pass the cost of the tariff onto the consumer, making one thingamajig $2.60 (or more), 3) Split the cost of the tariff with the consumer, so AIC takes a $0.30/each hit and the customer pays $2.30 a pop.

That scenario is not based on speculation. It is not made up. It is not some left-wing fantasy or delusion. It is capitalism. It is trade. It is how the system is designed. It is how the system works. And it is how the system has worked for a very long time. The importer pays for the cost of the tariff. Unless Congress changes that – unlikely if not impossible – that is the way tariffs work.

Given what we know about American capitalism and the practices of US corporations we would be fools to think that our fictional company AIC is going to eat the tariff, in part or at all. You are not going to hear this conversation at an AIC shareholder’s meeting:

Chief Financial Officer (CFO): Guys, guys! What are we going to do about the tariff on thingamajigs?

CEO: That’s a tricky one. I’ve got an idea! Let’s absorb the cost!

Chief shareholder: So, instead of making one $1 off each thingamajig, we’ll be making 40 cents a pop? Count me in!

That conversation has never happened, not in that way, especially not at the Trump Org. At best, AIC is going to eat part of the tariff and probably not 50%. But even if AIC does eat 50%. The consumer is still paying at least 15% more for a thingamajig than they did before the tariffs. That 15% cost increase is what we call inflation. Thus, Trump’s tariffs are not inflation beaters. They are inflation causer or enablers. They will almost certainly lead to higher prices for you and me on all imported goods – electronics, clothing, food, and more.

“But, but, but…We can make all that stuff here and that means American jobs!” Sure, American jobs at American wages, which means one of two things: American bosses start paying people more money or they force wages down. Either way, you and I get screwed. And by you and I, I mean everyone: Those in red, blue, and purple states; the white working class and Black “elite”; MAGAs and socialists and everyone in between.

I am all for more pay, but know that every time we get a raise, that raise is passed onto to us when companies hike prices to avoid taking a hit. The goal is to make sure wage increases outpace inflation. Conversely, we can keep the cost of American made goods down by paying American workers less than before. So, the cost of the American-made thingamajig is the same as the Chinese made one, but now we are making 20% less to keep the cost of the thingamajig down.

(All this begs the question of why Biden has kept some – not all – of Trump’s steel tariffs. The answer is threefold: First, politics. Most Americans are ignorant how tariffs work but, because of Trump repeating his bullshit ad nauseum, support them. Second, limited, targeted tariffs are not necessarily bad. Third, one in place, it is difficult to remove tariffs without causing damage. Why? Because a country targeted with a tariff with often retaliate with a tariff of their own, which is responded to with another tariff, and so it goes until our import/export system goes jenga.)   

There is one out: Immigration. Import more foreign workers – legally or not – workers that are willing to work in the thingamajig factory for less than what a naturalized American expects. That will keep the costs of American-made thingamajigs down and hopefully make wages stable. That could happen, but not in Trump’s world. Trump doesn’t want more immigration. He wasn’t a mass sweep of immigrants and even former immigrants who are now citizens.

Next up: How Trump’s immigration policy is an economic disaster.