Monday, August 6, 2018

The Washington Post Destroys Trump's Tariff Claims


Thanks to some really absurd claims by President Trump about his tariffs, even The Washington Post is publishing some sound economic analysis. Heather Long writes for WaPo:
President Trump tweeted Sunday morning that his tariffs are “working big time” and made a bizarre claim that the money raised from these new import taxes will go a long way to helping pay down America’s large debt. (Short answer: That’s not what will happen).

Trump portrays the tariffs as a tax on foreigners, but the reality is that tariffs are taxes on U.S. companies and consumers. When a big U.S. retail chain or an equipment manufacturer has to pay 10 or 25 percent more to get steel from Canada or a certain part from China, that U.S. company has to pay the tax when it imports that item. U.S. businesses either eat that extra cost or pass it along to consumers.

There are already signs that prices are rising because of Trump’s tariffs. Coca-Cola is raising prices on its drinks because his aluminum tariffs are making its cans more expensive, the company says. Winnebago, maker of RVs, also has raised some of its prices, blaming higher steel and aluminum costs. Over time, U.S. companies are likely to switch suppliers or change their products to use less of the higher-costing goods, but that doesn’t happen right away.

(RW note: It is possible that in a few limited cases a foreign manufacturer may absorb some or all of the tariff fee, but this would require a very special set of circumstances dependent on the degree of profit by the foreign firm and the price elasticity of the product.)

A further short comment from Long:
In terms of Trump’s claim that money raised from the tariffs will help pay down the debt, the United States has a debt of over $21 trillion. The president has imposed tariffs on $85 billion worth of foreign goods so far, meaning that, at most, his tariffs would raise about $21 billion, a minuscule percentage (0.1 percent) of the debt.

-RW