Trump’s universal tax-increase plan is a loser
Generally speaking, massive tax increase proposals are met with unfettered rage.
From the Boston Tea Party of 1773 to the political Tea Party movement beginning in 2009, Americans have demonstrated time and again that they don’t like taxes and never have.
Knowing this, it is curious that former President Donald J. Trump recently took to the airwaves and endorsed levying a massive universal baseline tariff on all imported goods. “When companies come in and they dump their products in the United States, they should pay, automatically, let’s say a 10 percent tax … I do like the 10 percent for everybody,” he announced.
If instituted, this would be the minimum. It would obviously reach much higher for some countries that draw his ire, and would boil down to a massive tax hike on everyday Americans. While Trump is not president—at least not yet—and has no current power to enact these tariffs, this proposal should concern Americans. Thankfully, many scholars have decried the plan as ridiculously misguided, and for good reason: Tariffs are taxes, and this one would be a doozy.
As it stands, the average tariff on imported goods is about 3 percent, according to The Washington Post. Drastically increasing this could have disastrous effects on an economy dealing with nagging inflation and would come at the expense of American consumers. “A tariff of that scope and size would impose a massive tax on the folks who it intends to help,” explained Paul Winfree, an economist who served in the Trump administration.
When tariffs are levied on imported products or even raw materials, companies are forced to bake those costs into their prices to keep from going bankrupt, and then they pass them onto consumers. Like all taxes, there’s the potential to harm the economy, and there’s plenty of evidence that it does.
“The Trump administration imposed nearly $80 billion worth of new taxes on Americans by levying tariffs on thousands of products valued at approximately $380 billion in 2018 and 2019, amounting to one of the largest tax increases in decades,” the Tax Foundation noted.
“We estimate the tariffs still in effect will reduce long-run GDP by 0.21 percent, wages by 0.14 percent, and employment by 166,000 full-time equivalent jobs,” the Tax Foundation concluded. This is substantial, but an across the board 10-percent baseline tax on imports would be even more disastrous. Trump’s universal baseline tariff plan would essentially be a $300-billion a year tax hike, per a recent estimate.
Despite this, there are some who applaud Trump’s position on tariffs. In fact, a Wall Street Journal essay recently and very surprisingly endorsed it. “Taxing imported goods is unpopular with economists,” the author admitted, “but it could help the U.S. lower the trade deficit, strengthen its industrial base and safeguard national security.”
In short, the piece argues that increased taxes are good for the government—allowing it to provide more public services—and tariffs, which are a form of taxation, are an effective method of browbeating the private market into bending to the government’s will, while curtailing our trade deficit.
A trade deficit occurs when a country spends more money on imports than other countries spend on our exports. The United States’ trade deficit for the month of August was about $58 billion, which is considerable, but as the Cato Institute notes, it’s not necessarily a bad thing: “What matters to the economy is not the difference between imports and exports but the extent to which Americans are free to benefit from the efficiencies, opportunities and consumer choice created in an economy open to world trade.”
Moreover, a trade deficit doesn’t necessarily pose a national security threat. In 2022, we had a trade deficit of $131 billion with Mexico. Does the fact that we have access to cheap, quality avocados year-round from Mexico represent a threat to America’s ability to defend itself? Of course not.
It’s important for the United States to have a strong domestic industrial base so that we are capable of seeing to our needs during times of emergency, but it’s also important to understand that we do not have access to every natural resource, nor are we able to produce some goods as efficiently as other countries.
Trump’s plan doesn’t discriminate in these cases. It would impose a 10-percent minimum tariff on every country, product and resource. This effectively is using a hatchet rather than a scalpel on a complex issue. In the end, it would simply limit consumer choices and access to important goods and lead to higher prices.
Give Trump and The Wall Street Journal writer credit for calling this what it would be: a tax. While I am not suggesting Americans respond by brandishing pitchforks and torches and dumping goods into Boston harbor, they should understand how devastating this plan could be.