Here’s a letter to a new correspondent.
Mr. F__:
Thanks for your email.
You ask if my “antagonism to our president’s tariffs may fall if his prediction comes true that the tariffs will replace income taxes.”
Reasonable people debate the merits of different tax regimes. Being a very-small-government guy, I’m favorably inclined to any tax regime that’s as mild and broad-based as possible. For reasons that I’ll not get into here, tariffs don’t fit this bill.
But there are other equally valid reasons for dismissing Trump’s boast that – and I quote him– “as time goes by, I believe the tariffs paid for by foreign countries will, like in the past, substantially replace the modern-day system of income tax.” These words reveal Trump’s cluelessness about history and economics.
First, since the federal income-tax was introduced in 1913, there’s never been a time “in the past” when tariffs replaced, much less “substantially” so, the modern-day system of income taxation. Anyone who’s this unfamiliar with history cannot be taken seriously.
Second, the data are clear that U.S. tariffs are overwhelmingly paid by Americans, not by foreigners. The fact that Trump continues to deny this fact is further reason not to take the man seriously.
Third, regardless of who pays U.S. tariffs, the maximum amount of revenue that these levies can raise wouldn’t come close to replacing the income tax. That Trump doesn’t recognize this reality is alone sufficient to discredit his boasts about his tariffs.
Fourth, if Trump really believes that foreigners pay all of the tariffs, then the fact that he also believes that his tariffs will create more manufacturing on American shores by protecting U.S.-based manufacturers from foreign competition exposes not only deep economic ignorance, but a flaw more fundamental: logical confusion. Foreigners pay U.S. tariffs only insofar as foreigners lower the prices they charge for the goods they export to America or as foreigners export fewer goods to America. If they pay all of these tariffs, foreigners absorb the entire tariff hike in the form of lower prices without reducing their exports. It follows that the prices that Americans pay for ‘protected’ goods don’t rise. And because these prices don’t rise, there’s no ‘protection’ given to American producers.
Trump’s blindness to the incompatibility between his claim, on one hand, that foreigners pay all of the tariffs, and, on the other hand, that the tariffs protect American manufacturing is, like each of the above three points, sufficient reason to dismiss all that he says about trade and tariffs.
Trump’s pronouncements on these issues drain him of all credibility when it comes to trade policy. Every mature person, regardless of politics, should resent the barrage of his intelligence-insulting pronouncements.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
