"The argument is that foreign manufacturers importing their wares into America will simply pass the tariff cost on to American consumers in the form of higher prices."
I'm a huge fan, but on this premise that you think will underlie the Democrats objections, you are entirely wrong. Foreign manufacturers do not pay the tariffs. The U.S. importer pays the tariffs. I know because I am one! Not even Democrats, believe this in the way you expressed it (or the way I interpreted it).
Now, the importer may pass the tariff cost on. For example, I import art, antiques and furniture from Asia. I have a container in process from India the goods on which will be tariffed at 26% if nothing changes. The good news is that the invoice cost is only about 50% of the cost-of-goods with the remaining 50% being shipping, intermodal freight, etc. etc. So, the hit to my costs will be about 13%. Because I am a direct importer and have pretty good margins, I will be able to absorb some of this by reducing those margins. I will likely also need to increase my prices, or at least reduce my discounts, a bit. All in all not a devastating situation for me. And , honestly, one I'd be willing to 'take for the gipper' if it achieves the intended goals over time.
You're certainly right that the importer pays the tax. In your case, that's you and not the foreign manufacturers.
But the more general case is that the importer and manufacturer are one and the same (or affiliated). That's the usual case with cars, for example. A BMW made at the BMW factory in Munich (or Mexico) is imported by BMW.
Got you...Your contention has merit in those cases, but not in all. As a hanging-on-by the-skin-of-my-teeth small independent importer/retailer, my biggest concern is not actual cost increases but perceptions/concerns on the part of would be customers about the impact of all of this on the overall economy and the value of their savings as it would relate to being able to purchase discretionary goods.
The US is one of the few countries in the world without a VAT. Given that our deficit is now 6% of GDP, we clearly need to raise taxes and to lower expenditures. The current deficit is unsustainable. Democrats clearly don't want to cut spending and Republicans don't want to raise income taxes, with good reason, in my opinion. Despite the claims on the left, the US has some of the highest marginal tax rates in the world on higher incomes. My suspicion is that Trump's tariffs are a back-door way of instituting a quasi-VAT.
Responding from a simplistic perspective, most mammals instinctively grasp fairness . One person-one vote…. about as fair as it gets. My mother established the fair way to divide a pie. The one who cuts the slices gets last pick. I’m a simpleton and ignorant in economics, but if the able bodied paid the same percentage rate regardless of income, that’s fair. Same goes for the US contributing to other countries. We donate a trillion in military protection, the benefactor donates something of equal value to us..
To build on your fairness analogy, an argument could be made that people should not pay the same percentage of their income in taxes, but should pay the same ACTUAL tax. If you're an able-bodied person, then you pay (to pick an arbitrary number) $10,000 in tax.
I wouldn't go quite that far, but a logical argument can be made for that. After all, rich people don't consume more in government services than poor people.
Glenn: No economist here, but, didn't Trump also cap SALT deductions to $10K? If I comprehend that, it would mean that the rich who have many homes (Obama, Sanders et al.) CANNOT deduct all those interest rates beyond $10K. Somehow that doesn't seem a real "tax break for billionaires," (Fauxahontas) and I sincerely doubt that the bottom 50% who pay 3% total taxes are living in more than one home.
You're correct about the limitation on the SALT deduction. But that's just a deduction, not a credit.
So if a taxpayer has, say, $25,000 in property tax, he can deduct only $10,000 of it. The remaining $15,000 gets taxed at presumably the highest marginal rates of around 37%. So the loss of the deduction on that $15K costs him less than $6k. (And it might be less than that once you figure in the AMT)
That's pretty small potatoes in comparison to marginal tax rates on people with income in the mid-6-figures or 7-figures.
Thanks for the explanation! Still, doesn't the cap result in less of a potential deduction? And, I'm still guessing that the "worthy poor" will NOT be harmed by the cap(?)
I genuinely wish the tariff and tax policies being proposed by Washington were as well-reasoned and logically presented as your column.
I thought the last election was to fix our own house and boost our economy by cutting spending, taxes, burdensome regulations, and interest rates…as well as illegal immigration, voter fraud and crime. Isn’t that what we voted for?
Yes, it’s true that the international trade system is not currently free. We’re all for free trade as long as it is fair trade, so go after the worst trade protectionists to make trade more free and fair. However, this universal tariff policy seems arbitrary and irrational. Isn’t that unfair?
Shouldn’t foreign nations know what they need to do when they bend their knee? Otherwise, why bend the knee? History teaches that trade wars have severe repercussions including recessions, depressions and even wars.
We can only hope nations quickly retreat from their protectionism so Trump can claim wins and then retreat from ours! 🙏
A couple things about your thoughtful comment, Melanie.
It's not clear that trade wars cause recessions or depressions. The Smoot-Hawley Act is often cited for that proposition, but economists think it, at most, worsened the Great Depression rather than starting it. (What really got it going was the thought that we needed to raise taxes to balance the budget in a time when the economy was crashing.)
To the extent Trump has started a trade war, it appears that he's already won it. The Journal and other sources report that not a single country has said they will retaliate; to the contrary, every country that has commented has said it will not. And many countries are already making nice by offering to remove barriers. (Notably, they didn't do this until AFTER the tariffs were announced.)
Trump is a good negotiator (and perhaps as unlikeable sometimes as one). Now he has the other countries in the position of negotiating against themselves while he pretends not to even want a deal. But I think he does want a deal -- he's the guy who wrote the book, right?
If there's no deal, we can live with that too. The American Dream is not all about cheap stuff. When I can buy a very good smart phone for $300, but it costs more than that to get a plumber to the house, something is weirdly messed up.
I sincerely hope that you’re correct, Glenn! I pray that the Trump tariffs are a no-lose proposition, that the resulting trade deals are artful and come fast – though I haven’t noticed any media coverage of that yet – and that the American Dream is not jeopardized, even if smart phones and everything except eggs, God forbid, become more expensive.
I have two lingering concerns. First, I worry that the United States will no longer be deserving of its exceptional label because it no longer upholds the ideals on which we were founded: the limited self-government of a free people, equality under the law, and economic freedom.
Did you know that tariffs were placed on territories that are uninhabited, in Australia to Norway, as well as on Israel, even after Israel suspended all tariffs on all U.S. goods? Meanwhile, the Taliban in Afghanistan got a sweeter deal than Israel did. Isn’t that capricious and irrational?
How can America be trusted, let alone exceptional, if we disregard our own values, rules and trade agreements? Doesn’t this undermine our moral authority and ability to rally the world during crises? If the world perceives the US as arbitrary and punitive rather than principled and predictable, doesn’t that diminish the cultural influence and soft power that sets us apart? If allies turn elsewhere, such as China or regional trade blocs, won’t we lose the exceptional role we’ve played as the global economic leader? And if Americans who voted for inflation relief and economic prosperity feel betrayed, won’t they be disillusioned and resentful?
My second concern is the sustainability of the American Dream you mentioned. America’s economic might, a cornerstone of our exceptionalism, thrives under free markets and innovation, NOT central economic planners. Tariffs, which are essentially centrally planned taxes, hinder innovation, reduce income and wealth, and often favor crony capitalists. They disrupt supply chains and raise costs for US manufacturers, disrupting industries, bankrupting farmers, and roiling small businesses. This contradicts the promise of free-market capitalism. How can we be a beacon of prosperity if we’re depleting the wealth of our nation (GDP is now projected to decline), businesses, 401ks, and individual standards of living?
Rather than an American Dream, wouldn’t that be an American Nightmare?
The same Democrats who argue that corporations need to be taxed more to "pay their fair share" are suddenly against taxes on corporations because they'll get passed on to consumers.
And just like that, Trump has turned Democrats into supply sidereal. What can't he do?
And yes, I wholeheartedly agree that all citizens should have skin in the tax game. Inflation was going a long way to achieve that.
WSJ Editorial Board - “The President invokes a law that doesn’t give him power to impose sweeping tariffs,” they wrote in the article’s subhead. “Someone should sue.” $6.4 TRILLION lost in just two days! He's burning down the house to cook a steak. Two covers from The Economist - October 19, 2024 - "The American economy...The Envy of the World. The recent cover of The Economist - "Ruination Day" - President Trump’s Mindless Tariffs Will Cause Economic Havoc. He deserves a long weekend hosting his golf tournament. "When a clown moves into a palace he doesn't become a king, the palace instead becomes a circus". - Turkish proverb.
The top 1% own more stocks than the entire middle class. We have never seen this before and it isn't healthy. And we do not want to punish the wealthy(except Zuckerberg for interfering in our elections).
"The argument is that foreign manufacturers importing their wares into America will simply pass the tariff cost on to American consumers in the form of higher prices."
I'm a huge fan, but on this premise that you think will underlie the Democrats objections, you are entirely wrong. Foreign manufacturers do not pay the tariffs. The U.S. importer pays the tariffs. I know because I am one! Not even Democrats, believe this in the way you expressed it (or the way I interpreted it).
Now, the importer may pass the tariff cost on. For example, I import art, antiques and furniture from Asia. I have a container in process from India the goods on which will be tariffed at 26% if nothing changes. The good news is that the invoice cost is only about 50% of the cost-of-goods with the remaining 50% being shipping, intermodal freight, etc. etc. So, the hit to my costs will be about 13%. Because I am a direct importer and have pretty good margins, I will be able to absorb some of this by reducing those margins. I will likely also need to increase my prices, or at least reduce my discounts, a bit. All in all not a devastating situation for me. And , honestly, one I'd be willing to 'take for the gipper' if it achieves the intended goals over time.
You're certainly right that the importer pays the tax. In your case, that's you and not the foreign manufacturers.
But the more general case is that the importer and manufacturer are one and the same (or affiliated). That's the usual case with cars, for example. A BMW made at the BMW factory in Munich (or Mexico) is imported by BMW.
Got you...Your contention has merit in those cases, but not in all. As a hanging-on-by the-skin-of-my-teeth small independent importer/retailer, my biggest concern is not actual cost increases but perceptions/concerns on the part of would be customers about the impact of all of this on the overall economy and the value of their savings as it would relate to being able to purchase discretionary goods.
By the way, check out my site... www.decorasianstyle.com. If you are ever in the Big D, stop by and introduce yourself.
The US is one of the few countries in the world without a VAT. Given that our deficit is now 6% of GDP, we clearly need to raise taxes and to lower expenditures. The current deficit is unsustainable. Democrats clearly don't want to cut spending and Republicans don't want to raise income taxes, with good reason, in my opinion. Despite the claims on the left, the US has some of the highest marginal tax rates in the world on higher incomes. My suspicion is that Trump's tariffs are a back-door way of instituting a quasi-VAT.
Agreed -- most economists like VATs because they tax consumption rather than taxing work or investments.
Well said. So much of what is going on is plain NOISE. Everyone calm down. The Dems feast on FEAR. Keep up the good work.
Responding from a simplistic perspective, most mammals instinctively grasp fairness . One person-one vote…. about as fair as it gets. My mother established the fair way to divide a pie. The one who cuts the slices gets last pick. I’m a simpleton and ignorant in economics, but if the able bodied paid the same percentage rate regardless of income, that’s fair. Same goes for the US contributing to other countries. We donate a trillion in military protection, the benefactor donates something of equal value to us..
To build on your fairness analogy, an argument could be made that people should not pay the same percentage of their income in taxes, but should pay the same ACTUAL tax. If you're an able-bodied person, then you pay (to pick an arbitrary number) $10,000 in tax.
I wouldn't go quite that far, but a logical argument can be made for that. After all, rich people don't consume more in government services than poor people.
I like it!!!
Economics are complicated.
The media lies to you, "The average family will pay $7 million more--acording to estimates."
Try this arithmetic:
Last month an avocado cost $1 at the grocery store.
Trump's tariff is 10%.
In the meantime the Mexican peso goes down 10% in relation to the American dollar.
Trick question: what is the cost of an avocado now?
Answer: $1.05
The grocery store will take the opportunity to get some profit and blame the gubmint.
Eventually, competition will bring it down.
Economics are complicated.
Randy k, try again, avocados would go to$0.99, down 10% to 0.90, plus tariff and you have cheaper avocados.....oh yeah!
Glenn: No economist here, but, didn't Trump also cap SALT deductions to $10K? If I comprehend that, it would mean that the rich who have many homes (Obama, Sanders et al.) CANNOT deduct all those interest rates beyond $10K. Somehow that doesn't seem a real "tax break for billionaires," (Fauxahontas) and I sincerely doubt that the bottom 50% who pay 3% total taxes are living in more than one home.
You're correct about the limitation on the SALT deduction. But that's just a deduction, not a credit.
So if a taxpayer has, say, $25,000 in property tax, he can deduct only $10,000 of it. The remaining $15,000 gets taxed at presumably the highest marginal rates of around 37%. So the loss of the deduction on that $15K costs him less than $6k. (And it might be less than that once you figure in the AMT)
That's pretty small potatoes in comparison to marginal tax rates on people with income in the mid-6-figures or 7-figures.
Thanks for the explanation! Still, doesn't the cap result in less of a potential deduction? And, I'm still guessing that the "worthy poor" will NOT be harmed by the cap(?)
You're right about both.
I genuinely wish the tariff and tax policies being proposed by Washington were as well-reasoned and logically presented as your column.
I thought the last election was to fix our own house and boost our economy by cutting spending, taxes, burdensome regulations, and interest rates…as well as illegal immigration, voter fraud and crime. Isn’t that what we voted for?
Yes, it’s true that the international trade system is not currently free. We’re all for free trade as long as it is fair trade, so go after the worst trade protectionists to make trade more free and fair. However, this universal tariff policy seems arbitrary and irrational. Isn’t that unfair?
Shouldn’t foreign nations know what they need to do when they bend their knee? Otherwise, why bend the knee? History teaches that trade wars have severe repercussions including recessions, depressions and even wars.
We can only hope nations quickly retreat from their protectionism so Trump can claim wins and then retreat from ours! 🙏
A couple things about your thoughtful comment, Melanie.
It's not clear that trade wars cause recessions or depressions. The Smoot-Hawley Act is often cited for that proposition, but economists think it, at most, worsened the Great Depression rather than starting it. (What really got it going was the thought that we needed to raise taxes to balance the budget in a time when the economy was crashing.)
To the extent Trump has started a trade war, it appears that he's already won it. The Journal and other sources report that not a single country has said they will retaliate; to the contrary, every country that has commented has said it will not. And many countries are already making nice by offering to remove barriers. (Notably, they didn't do this until AFTER the tariffs were announced.)
Trump is a good negotiator (and perhaps as unlikeable sometimes as one). Now he has the other countries in the position of negotiating against themselves while he pretends not to even want a deal. But I think he does want a deal -- he's the guy who wrote the book, right?
If there's no deal, we can live with that too. The American Dream is not all about cheap stuff. When I can buy a very good smart phone for $300, but it costs more than that to get a plumber to the house, something is weirdly messed up.
I sincerely hope that you’re correct, Glenn! I pray that the Trump tariffs are a no-lose proposition, that the resulting trade deals are artful and come fast – though I haven’t noticed any media coverage of that yet – and that the American Dream is not jeopardized, even if smart phones and everything except eggs, God forbid, become more expensive.
I have two lingering concerns. First, I worry that the United States will no longer be deserving of its exceptional label because it no longer upholds the ideals on which we were founded: the limited self-government of a free people, equality under the law, and economic freedom.
Did you know that tariffs were placed on territories that are uninhabited, in Australia to Norway, as well as on Israel, even after Israel suspended all tariffs on all U.S. goods? Meanwhile, the Taliban in Afghanistan got a sweeter deal than Israel did. Isn’t that capricious and irrational?
How can America be trusted, let alone exceptional, if we disregard our own values, rules and trade agreements? Doesn’t this undermine our moral authority and ability to rally the world during crises? If the world perceives the US as arbitrary and punitive rather than principled and predictable, doesn’t that diminish the cultural influence and soft power that sets us apart? If allies turn elsewhere, such as China or regional trade blocs, won’t we lose the exceptional role we’ve played as the global economic leader? And if Americans who voted for inflation relief and economic prosperity feel betrayed, won’t they be disillusioned and resentful?
My second concern is the sustainability of the American Dream you mentioned. America’s economic might, a cornerstone of our exceptionalism, thrives under free markets and innovation, NOT central economic planners. Tariffs, which are essentially centrally planned taxes, hinder innovation, reduce income and wealth, and often favor crony capitalists. They disrupt supply chains and raise costs for US manufacturers, disrupting industries, bankrupting farmers, and roiling small businesses. This contradicts the promise of free-market capitalism. How can we be a beacon of prosperity if we’re depleting the wealth of our nation (GDP is now projected to decline), businesses, 401ks, and individual standards of living?
Rather than an American Dream, wouldn’t that be an American Nightmare?
The same Democrats who argue that corporations need to be taxed more to "pay their fair share" are suddenly against taxes on corporations because they'll get passed on to consumers.
And just like that, Trump has turned Democrats into supply sidereal. What can't he do?
And yes, I wholeheartedly agree that all citizens should have skin in the tax game. Inflation was going a long way to achieve that.
What about the lesson of the Smooth Hawley act? I'm not sure that the outcome will be positive.
WSJ Editorial Board - “The President invokes a law that doesn’t give him power to impose sweeping tariffs,” they wrote in the article’s subhead. “Someone should sue.” $6.4 TRILLION lost in just two days! He's burning down the house to cook a steak. Two covers from The Economist - October 19, 2024 - "The American economy...The Envy of the World. The recent cover of The Economist - "Ruination Day" - President Trump’s Mindless Tariffs Will Cause Economic Havoc. He deserves a long weekend hosting his golf tournament. "When a clown moves into a palace he doesn't become a king, the palace instead becomes a circus". - Turkish proverb.
The top 1% own more stocks than the entire middle class. We have never seen this before and it isn't healthy. And we do not want to punish the wealthy(except Zuckerberg for interfering in our elections).