Our friends on the left, however, are not big fans of profit. In part, this is because many people think that business are reaping enormous profits. In reality, as shown by this chart, the average profit margin is only about 7 percent.
I’m sharing this chart because many people in Washington seem to think it’s okay to saddle businesses with higher taxes, more red tape, and other burdens.
After all, if companies have enormous profits, they can afford it.
Except companies don’t have huge margins. So when politicians do things that raise costs, someone is going to get hurt.
Consumers will pay higher prices.
Workers will get lower wages.
Investors will earn lower returns.
Now let’s look at a real-world example. President Trump has unilaterally imposed massive tax increases on imports. Those higher taxes surely will be bad in the long run for workers and investors, but the immediate effect will be higher prices for imported goods.
This is very bad news for companies, most of whom have the aforementioned narrow profit margins. They are among the victims of Trump’s protectionism. If they want to stay above water, they have no choice but to raise prices.
But when that happens, the White House engages in victim-blaming. One example is from last month, as reported by Alayna Treene, Betsy Klein, and Jordan Valinsky for CNN. Here are some excerpts.
The White House took aggressive aim at Amazon, with President Donald Trump putting in a call to Amazon founder Jeff Bezos Tuesday morning, after the company considered displaying the added cost of tariffs… The call came shortly after one of the senior officials phoned the president to inform him of the story. …At a briefing Tuesday, White House Press Secretary Karoline Leavitt calledthe move a “hostile and political act”… Commerce Secretary Howard Lutnick echoed Levitt’s comments, saying it’s a hostile act if a company goes out of its way to “make it seem” like tariffs have caused prices to change.
A more recent example is the White House attacking Walmart.
Here are some passages from an Associated Pressstory by Josh Boak.
President Donald Trump on Saturday ripped into Walmart, saying on social media that the retail giant should eat the additional costs created by his tariffs. As Trump has jacked up import taxes, he has tried to assure a skeptical public that foreign producers would pay for those taxes and that retailers and automakers would absorb the additional expenses. Most economic analyses are deeply skeptical of those claims… Walmart warned on Thursday that everything from bananas to children’s car seats could increase in price. Trump…lashed out at the retailer… He said the company, based in Bentonville, Arkansas, should sacrifice its profits.
What’s especially nauseating is that most Republicans on Capitol Hill know Trump is wrong, as do most Republican-affiliated pundits.
Yet the vast majority of them are staying silent, even though they were very critical when Biden and Democrats were peddling the “greedflation” nonsense a few years ago.
As the old saying goes, sauce for the goose should be sauce for the gander. Which is why I created the Ninth Theorem of Government.
P.S. Time for a wonky point. I wrote a column during Biden’s tenure with the title “White House Victim-Blaming on Inflation.” What makes that column and today’s column similar is that both Biden and Trump chose to demonize businesses for higher prices – even though the higher prices were caused by bad government policy.
So why, then, didn’t I entitle today’s column “White House Victim-Blaming on Inflation: Part II”?
The answer is that inflation is caused by bad monetary policy, which leads over time to bad things such as overall increases in prices and/or asset bubbles.
Trump’s tax increases on trade, by contrast, will cause higher prices for some goods. But unless tariffs are accompanied by excess money creation by the Federal Reserve, the overall price level should be unaffected. The economy will be less dynamic and less efficient, of course, but that’s not the same as higher overall prices (I’ve made similar points when explaining that tax cuts are not inflationary and deficit spending is not inflationary).
P.P.S. To get even wonkier, I should acknowledge that protectionist trade policy could lead to higher overall prices over time because of falling output. We normally think of prices rising because of bad monetary policy – i.e., the M rising in the MV=PO equation, causing the P to then increase (where M is money, V is velocity, the P is prices and the O is output). However if protectionism leads to falling O because of a less-dynamic economy, then the P will increase.
Economists sometimes use the colloquial phrase that “inflation is too much money chasing too few goods.” In most cases, the “too much money” is the problem. But it’s also possible that “too few goods” can be the driving force.
P.P.P.S. Shifting gears, here’s a non-wonky point about profits. People like to periodically demonize oil companies as “profiteers” because of high gasoline prices. But you can click here to learn who gets the most money when you fill your car with gas.
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
