How Trump’s Tariffs Could Save the Middle Class | 10.5.24

EJ Antoni provides insight into the complex nature of tariffs, comparing them to domestic taxes and discussing their role in international trade and their impact on the economy.

Tariffs are a tax on international trade, functioning similarly to domestic taxes like sales or income tax.

Like domestic taxes on sales and income, tariffs are a form of tax that applies to international trade. Tariffs can be paid either by the importer, who may subsequently pass the cost onto consumers through higher prices, or by the exporter, who might absorb some or all of the cost themselves.

Antoni clarifies that the economic impact of tariffs greatly depends on whether consumers have alternative sources for the imported product. If alternatives exist, this competition can restrain the importer’s ability to transfer the full tariff cost to the consumer. Without alternatives, the cost is more likely to be borne by the end consumers through higher prices.

Tariffs can be used tactically as a negotiating tool to level the playing field for domestic producers, rather than as a broad protectionist measure.

Broad protectionist tariffs can lead to negative economic outcomes, an example being the Smoot-Hawley tariffs of 1929. However, Antoni points out t ...

Tariffs have been a significant policy tool under both the Trump and Biden administrations, targeting imports, particularly from China, to address various economic goals and issues.

The Trump administration used tariffs, especially on Chinese steel, to counter unfair trade practices and subsidies, with the majority of the tariff cost being absorbed by Chinese producers.

Donald Trump promised to impose huge tariffs on Chinese imports and American companies who move their production outside of the country. His administration targeted Chinese steel with tariffs, and approximately 80 percent of the tariff cost was absorbed by Chinese producers due to their inability to increase selling prices without becoming too expensive compared to alternatives. This countered the subsidies that the Chinese steel industry received from the Chinese government, effectively making Chinese taxpayers pay the U.S. Treasury indirectly.

The Trump administration's use of tariffs as a tactical negotiating tool, rather than broad protectionism, helped to level the playing field for domestic producers.

EJ Antoni notes that when Chinese manufacturers were not willing to absorb the cost of the tariff, American consumers would opt for alternatives, which sometimes included domestic products. This suggests that Trump used tariffs tactically, akin to tactical bombing in warfare, as a negotiating tool to achieve fair competition for American producers and induce businesses to build plants in the U.S. This approach is contrasted with broad protectionism like the Smoot-Hawley tariffs, hinting that Trump's tariffs were not meant to be a permanent trade policy but a means to a strategic end.

The Biden administration has maintained many ...

The discussion on tariffs and their impact on U.S. manufacturing and jobs touches on complex issues involving profitability, investment, and the regulatory environment.

Tariffs can be used to discourage companies from moving production outside the US

Donald Trump proposed imposing tariffs on companies like John Deere to prevent them from relocating production abroad. While this approach aims to retain manufacturing jobs in the U.S., it may lead to reduced profitability for the companies involved. The potential for decreased profit margins can result in a reduction in shareholder investment, which may lead to fewer employment opportunities and a decline in the production of goods.

While this can help retain domestic manufacturing jobs, it may also lead to decreased profitability and investment for the affected companies.

By using tariffs as leverage, the government could force companies to choose between maintaining manufacturing operations in the U.S. with reduced profits or ceasing operations entirely. This could result in negative consequences for the business, such as flight of investment capital, ultimately leading to fewer employed individuals and fewer products manufactured domestically.

The primary driver of manufacturing job losses and production moving overseas is the high regulatory and tax burden on domestic manufacturers

Antoni highlights the heavy regulatory burden placed on U.S. manufacturers, with regulatory costs per worker potentially doubling the cost for employers. He also addresses the paradox where import taxes are reduced, but taxes on domestically produced goods, such as home appliances, are increased. Such domestic-only regulations and taxes incentivize manufacture ...