When President Biden proposed a 10-year tax hike of about $3 trillion in 2021, I was very critical.
But my hostility was not because Biden is a Democrat. I’ve also condemned Republicans who support higher taxes (either overtly or covertly).
So it goes without saying that I’m going to be very critical now that President Trump is floating a massive tax increase (also potentially amounting to about $3 trillion over 10 years) on American consumers.
And it does not matter that Trump’s potential tax increase is on trade. His proposal is bad news (just like Biden’s tax increase is bad news) because the net effect would be to divert trillions of dollars from the private economy and give it to politicians.
Jeff Stein of the Washington Post reports on Trump’s big tax grab.
Trump’s plan to enact a “universal baseline tariff” on virtually all imports to the United States…could represent a massive escalation of global economic chaos, surpassing the international trade discord that marked much of his first administration. …On Fox Business on Thursday, the former president called for setting this tariff at 10 percent “automatically” for all countries, a move that experts warn could lead to higher prices for consumers… Economists of both parties said Trump’s tariff proposal is extremely dangerous.
As one might imagine, Trump’s idea is being ridiculed by all trade experts.
Adam Posen, president of the Peterson Institute for International Economics, a Washington think tank, called the idea “lunacy” and “horrifying”. …a 10 percent tariff would hurt the thousands of U.S. firms that depend on imports, while also crippling the thousands of U.S. firms that depend on foreign exports, Posen said. …Even former Trump economic officials were sharply critical of the idea. “A tariff of that scope and size would impose a massive tax on the folks who it intends to help,” said Paul Winfree, an economist who served as Trump’s deputy director of the Domestic Policy Council… Michael Strain, an economist at American Enterprise Institute, a center-right think tank, said international trade restrictions enacted in 1930 are widely viewed as exacerbating the Great Depression. …“It would be a disaster for the U.S. economy. It would raise prices for consumers and be met with considerable retaliation from other nations, which would raise the costs facing U.S. businesses. It would reduce employment among manufacturing workers,” Strain said. “It would be very, very bad.”
For readers who want a refresher on why protectionism is bad news, I have four short videos that cover the key issues.
- The economic analysis of trade
- Trade and creative destruction
- Understanding trade deficits
- The World Trade Organization
While I’m an ardent opponent of protectionism, I’ll close with two ways that Trump could make his ideas more palatable.
- If he matched his $3 trillion tax hike on trade with $3 trillion of offsetting tax cuts, the fiscal argument against his plan – at least theoretically – largely would disappear (though the trade argument would remain).
- If he proposed protectionism solely against potentially hostile nations such as China, he would – at least theoretically – have a foreign policy-based argument for the plan (though the trade argument would remain).
But I don’t expect to hear these arguments.
The problem, dating all the way back to when Trump was campaigning in 2016, is that he simply does not understand trade.
P.S. Between Trump’s awful ideas on trade (echoed by Biden) and the European Union’s proposal for massive trade taxes, it’s hard to be optimistic about future prosperity.
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Image credit: Gage Skidmore | CC BY-SA 2.0.
