I glanced through a few headlines in the New York Times and Washington Post and caught some headline reports on CNN and MSNBC. They announced Trump had secured several important trade deals ahead of his August 1 ultimatum to all nations. While technically true, the reports failed to convey the obvious: these deals left readers and listeners with the impression that something good had been achieved for the nation, when that is unlikely at best.
Tariffs, as everyone should know by now, are a form of national sales tax paid by importers and eventually passed on to consumers. These so-called “wonderful new deals” have effectively raised that tax from about 2% or less to 15% or more. In return for increasing the tax burden on American citizens, Trump has secured vague promises from other countries to buy more American goods or invest more in American industries. It is difficult to see how any of these deals are meaningfully beneficial to the United States.
Trump appears to believe that revenue from import tariffs—a highly regressive tax—can replace taxes on earned income. The current income tax system, while far from perfect, is at least marginally progressive: those with higher incomes pay a greater share. Replacing it with a national sales tax disproportionately affects low-income Americans. No credible economist believes a tariff-based system can generate enough revenue to offset recent income tax cuts that have largely benefited the wealthy. The likely result is an overall tax increase for nearly everyone. That’s not what Trump has promised, nor, I think, what he believes will happen—but, as is so often the case, he simply does not know what he is doing.
He continues to claim other nations have been robbing us blind through unfair trade deals. Yes unfair trade practices exist and likely always will, but we have historically addressed them through negotiation, often with benefits to our own economy. Our trade disputes have mostly involved specific products—not trade in general. We willingly outsourced many well-paying manufacturing jobs to lower-cost countries. What we failed to do was invest adequately in the workers who were displaced. The fantasy of bringing those jobs back is just that—a fantasy. The old industrial processes and jobs no longer exist.
What we need instead is strong, purposeful government action to underwrite education and training for well-paying jobs suited to today’s and tomorrow’s economy. We also need to restructure corporate incentives to ensure those jobs truly offer good wages and security.
Other current headlines claim the economy remains robust, despite dire warnings about the impact of higher tariffs. Is this just Chicken Little crying that the sky is falling? I don’t think so. I see the warnings as a form of prophecy. They tell us that if we continue down this path, we will contribute to our own economic downfall—perhaps not this month or next quarter, but inevitably, all the same.