Tag Archives: Populism

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Donald Trump’s plan to introduce tariffs is just a tax on consumer goods

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I have a key that will unlock a puzzling mystery
I have a key that will unlock a puzzling mystery

What are the consequences of adopting tariffs for all of the people who are affected? What happens next, after stage one?

Here’s a lesson in basic economics from Joe Carter, writing for the Acton Institute.

He writes:

Both Sanders and Trump propose increasing tariffs on goods imported from other countries — and increase them significantly.* This isn’t that surprising for Sanders, a socialist who, on the issue of economics, is one of the most ill-informed candidates in modern history. But Trump should (and probably does) understand the detrimental impact tariffs have on the poor. And yet he has proposed an economy-crippling, poverty-increasing tariff.

In 2012, Trump proposed a tariff on China of 25 percent. In 2016 he bumped it up to 45 percent. (He later tried to lie and say he never proposed the 45 percent increase, but there is audio of him making the proposal.) A tariff is simply a tax on imports or exports, so Trump is proposing to raise taxes on imported goods by 25 to 45 percent. (To keep this point in mind, I’ll hereafter refer to tariffs as “taxes.”)

You might be thinking, “ So what? That’s a tax the Chinese have to pay.” But that’s not the way tariffs works. China doesn’t pay the tax — you do. If a tariff on Chinese goods is increased by 25 to 45 percent then you pay 25 to 45 percent more for those goods.

Here’s a way to think about it. Imagine there are two hamburger stands in town. One is owned by the mayor’s wife, Veronica, and one is owned by a woman who lives in the next town over, Betty.

Of the two, Betty makes the tastier burger. She is also able to charge $1 a burger since she is able to buy her supplies in her own hometown for much cheaper. Veronica’s burgers aren’t quite as good and cost more to make. She has to charge $1.30 per burger.

The mayor decides to implement a new tax of 45 percent on producers (like Betty) who don’t live in the city limits. Since Betty’s profit margin is already low, she has to pass the bulk of the 45-cent tax on to her customers. Instead of $1 she now has to charge $1.35.

So who is better off in this scenario? The only winner is Veronica. Since her burgers are now cheaper, she is likely to sell more. And who is worse off? The customers who now have to pay 30 to 35 cents more for every burger. That is money they could have used to buy other products or services. Now they have to spend additional money on this new tax.

The same principle applies to taxes on goods and services imported from other countries. Customers simply have to pay more for goods and services they used to get much cheaper.

To understand how Trump’s tax increase would affect consumers, take a trip to Target or Wal-Mart and add 45 percent to almost all the prices. That’s money that comes directly out of your pocket into the hands of the federal government — all to punish you for buying goods that are cheaper to make in China.

Harvard University economist Greg Mankiw explains what most professional economists agree on. The economic benefit of free trade tied for first place, with 93% agreement:

The recent debate over the stimulus bill has lead some observers to think that economists are hopelessly divided on issues of public policy. That is true regarding business cycle theory and, specifically, the virtues or defects of Keynesian economics. But it is not true more broadly.

My favorite textbook covers business cycle theory toward the end of the book (the last four chapters) precisely because that theory is controversial. I believe it is better to introduce students to economics with topics about which there is more of a professional consensus. In chapter two of the book, I include a table of propositions to which most economists subscribe, based on various polls of the profession. Here is the list, together with the percentage of economists who agree:

  1. A ceiling on rents reduces the quantity and quality of housing available. (93%)

  2. Tariffs and import quotas usually reduce general economic welfare. (93%)

He is the author of his “favorite textbook”, which is published by Harvard University Press.

This is not controversial among professional and academic economists. Economists across the ideological spectrum understand that free trade lowers the prices of consumer goods, and allows individuals, families and businesses to get more quality for their dollars. We can do better than Donald Trump and his naive, populist economic pablum.

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Commentary

MUST-READ: Rex Murphy explains Sarah Palin’s popularity to Canadians

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Sarah Palin

A Canadian perspective on Sarah Palin from the National Post. (H/T Derek)

Excerpt:

She’s been a presence in American national politics for only about two years. She is a cheerful human being, with a large family, an apparently easy-going and normal husband. She has a personality that would sell corn flakes — if not grow them. What career she had in Alaska, she earned. She’s at home indoors and out, radiates human warmth, seems to have some balance about herself, and has displayed over the last year or so a considerable fortitude under an avalanche of mockery and hatred. For the final stroke of this cameo I should note she is smart — smarter than 90% of the people who make a point of how rock-stupid they know she is.

She, by rights, should be queen of the feminists. All that self-reliance, her takeover of Alaska politics, the rocket ride to a Vice-Presidential ticket, a public career she blends with her family life– these seem gold-standard credentials for a real feminist. But official feminism derides herewith an unspeakable intensity. Her early critics were not beyond the inane claim that she was somehow not really a woman.

I side with those who venture that the nerves Palin hits have more to do with class — where she’s from, how she speaks, where she was educated, what she likes (the moose-hunting), than her politics or her gender. She’s rural, she came into national politics from (ugh) Alaska. She and her husband have the unerasable stigmata of the modern working class. She would not be embarrassed to be seen walking into Wal-Mart.

[…]But America’s professional public class, and the commentariat who still have some (though declining) power to police it, like to view Lincoln’s common man, or woman, as an object in the distance, as an object of their supercilious care and concern, but not as a player in the game. Palin is simply not supposed to be a player. She’s not only from the wrong side of the tracks, she’s so far over on the wrong side she can’t see the railway station.

But there she is, in all her roughness and candour, and her spiky wit and ability to irritate her self-nominated betters. She also happens to be the most naturally charismatic politician at the moment in the United States. She is the one major figure who can claim authenticity without morally choking on the word. That makes her the populist rallying point of a nascent rejection of the fervid partisanship and Washington insiderism that is eroding the consent on which American politics is founded.

This is probably one of the best columns I have read all year. I recommend reading the whole thing. It’s always good for men to admire women, and it helps when you have women like Sarah Palin to admire. Of course, you all know that Michele Bachmann is my favorite, but still. Not everyone can be perfect.

Canada doesn’t have a Sarah Palin. The closest person they have is Danielle Smith of the Wildrose Alliance Party in Alberta, I think.