We now know the Trump tariff proposals and the President’s comments in the Rose Garden revealed his intentions. The tariffs have very little to do with actual trade and are primarily structured to change tax policy. The most revealing comment in the presentation was as follows:
“Then in 1913, for reasons unknown to mankind, they established the income tax so that citizens, rather than foreign countries, would start paying the money necessary to run our government. Then in 1929, it all came to a very abrupt end with the Great Depression, and it would have never happened if they had stayed with the tariff policy, it would have been a much different story.”
The quote reveals astonishing ignorance but it also highlights Trump’s aversion to the personal income tax. “(f)or reasons unknown to mankind” is ridiculous: the income tax was initiated precisely because the US reliance on tariffs was extraordinarily regressive since the poor paid most of the tariffs. When the personal income tax was introduced it exempted those who made less than $3000 a year for an individual or $4000 for a family. In 1913, that exempted 60% of the population. The income tax was designed specifically to gain revenue from the “rich”. And those exemptions are roughly comparable to those allowed today. The only real change is that the rich now have options to disguise their income (such as offshore accounts or shell companies) that were not available in 1913 so that many rich avoid paying any taxes. According to ProPublica:
“To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period….
The results are stark. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%.
“It’s a completely different picture for middle-class Americans, for example, wage earners in their early 40s who have amassed a typical amount of wealth for people their age. From 2014 to 2018, such households saw their net worth expand by about $65,000 after taxes on average, mostly due to the rise in value of their homes. But because the vast bulk of their earnings were salaries, their tax bills were almost as much, nearly $62,000, over that five-year period.”
The US now has tariff levels that are greater than the Smoot-Hawley tariffs that aggravated the Great Depression. There are two types of tariffs imposed by Trump. The first are reciprocal tariffs, which are presumably designed to compensate for non-tariff barriers such as health and safety regulations which impede the free flow of goods and services. Those tariffs are those on the poster that Trump held up at the Rose Garden ceremony. The list was remarkable in many respects (including the uninhabited Heard and and McDonald Islands, Svalbard, and Jan Mayen Islands which had no trade with the US, as well as leaving off Russia and North Korea from the list) but its most outstanding feature was the incredible assumption that such non-tariff barriers could be quantified. The Office of the US Trade Representative posted information about how these figures were derived and I challenge anyone to figure out what the process was. One can try to read the defense, but it is based on some fanciful assumptions that are quite literally picked out of the air.
But the second type of tariff, the flat 10% tariff on every imported item, is clearly designed to produce revenue. The World Bank asserts that the US imported $3.5 trillion of goods and services in 2024. That works out to a revenue flow of $350 billion, a substantial amount of money which will be amplified when the reciprocal tariffs are factored in (I lack the ability to figure out that amount given the opaque nature of its calculation). I suspect that when the Federal budget is finally passed by Congress (which may be delayed until September of this year), President Trump will use these tariff amounts to justify the inclusion of permanent tax cuts for the rich. The question is whether the American people will consider these tariffs as what they really are: a profoundly regressive tax falling hardest on the poor.
There are two additional points which should be made about these tariffs. First, the legal authority for Trump to raise these tariffs is included in the following legislation:
Section 232 of the Trade Expansion Act of 1962: This allows the president to impose tariffs if imports are deemed a threat to national security.
Section 301 of the Trade Act of 1974: This enables the president to take action against unfair trade practices by other countries.
International Emergency Economic Powers Act (IEEPA): This grants the president broad authority to regulate economic transactions during a national emergency.
Note that these are emergency powers which Trump has unilaterally declared. There is no trade emergency of which I am aware–the trade patterns have been consistent over time. Nor is the US at war or facing some sort of contagious disease that requires bottlenecks at trading ports. The only national emergency of which I am aware is the singular ignorance and incompetence of the Trump Administration. The Congress should declare that the US is not in an emergency. Trump would undoubtedly veto such legislation, but it is nonetheless important for the question to be raised. It is important for the Congress to reassert its authority over tariffs and trade: Article I, Section 8 of the U.S. Constitution vests the power to lay and collect tariffs with Congress. Trump’s abuse of emergency authority makes this action imperative.
Second, the world will soon confront Trump’s deal-making. The tariffs give him incredible power when negotiating with other states and with corporations. Pema Levy outlines how tariffs are particularly prone to corruption:
With tariffs, Trump is poised to trade a strong economy for one run on loyalty and retribution. Trump, a president who rules like a mob boss while claiming vast new powers, is transforming the government into a tool of reward and punishment. Already, prosecutions against Trump’s friends are being dropped, while those who have crossed him find themselves the target of vindictive executive orders. Media critical of Trump are under investigation by a weaponized Federal Communications Commission, while universities are being bullied into shutting down free speech. Tariffs will scale this weaponization across the entire economy. Viewed in this light, Trump’s willingness to sacrifice the economy in exchange for control over it makes perfect sense.
Even those close to Trump see this trade for what it is. ‘Tariffs are a tool the president enjoys because it’s personal power,’ Rep. Ryan Zinke (R-Mont.), who served in Trump’s first-term cabinet, told HuffPost Tuesday. ‘It’s personal―he doesn’t have to go through Congress. He can exercise personal power.’”
We will see how many exceptions Trump grants to people and corporations. Undoubtedly, he will use this power to enrich himself immensely despite the havoc and misery his polices will engender. The Economist summarizes Trump’s policies with precision and force:
“Almost everything Mr Trump said this week—on history, economics and the technicalities of trade—was utterly deluded. His reading of history is upside down. He has long glorified the high-tariff, low-income-tax era of the late-19th century. In fact, the best scholarship shows that tariffs impeded the economy back then. He has now added the bizarre claim that lifting tariffs caused the Depression of the 1930s and that the Smoot-Hawley tariffs were too late to rescue the situation. The reality is that tariffs made the Depression much worse, just as they will harm all economies today. It was the painstaking rounds of trade talks in the subsequent 80 years that lowered tariffs and helped increase prosperity.
“On economics Mr Trump’s assertions are flat-out nonsense. The president says tariffs are needed to close America’s trade deficit, which he sees as a transfer of wealth to foreigners. Yet as any of the president’s economists could have told him, this overall deficit arises because Americans choose to save less than their country invests—and, crucially, this long-running reality has not stopped its economy from outpacing the rest of the G7 for over three decades. There is no reason why his extra tariffs should eliminate the deficit. Insisting on balanced trade with every trading partner individually is bonkers—like suggesting that Texas would be richer if it insisted on balanced trade with each of the other 49 states, or asking a company to ensure that each of its suppliers is also a customer.
“And Mr Trump’s grasp of the technicalities was pathetic. He suggested that the new tariffs were based on an assessment of a country’s tariffs against America, plus currency manipulation and other supposed distortions, such as value-added tax. But it looks as if officials set the tariffs using a formula that takes America’s bilateral trade deficit as a share of goods imported from each country and halves it—which is almost as random as taxing you on the number of vowels in your name.
“This catalogue of foolishness will bring needless harm to America. Consumers will pay more and have less choice. Raising the price of parts for America’s manufacturers while relieving them of the discipline of foreign competition will make them flabby. As stockmarket futures tumbled, shares in Nike, which has factories in Vietnam (tariff: 46%) fell by 7%. Does Mr Trump really think Americans would be better off if only they sewed their own running shoes?”
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