World Economy

Donald Trump’s Tariff Argument Has Few Takers

Trump has driven some of his economic advisers crazy with his insistence that tariffs are smart policy and hurt adversaries much more than the United States
Donald Trump’s Tariff Argument Has Few Takers  Donald Trump’s Tariff Argument Has Few Takers

President Trump tweeted Sunday morning that his burgeoning trade wars with China and other countries will have a very specific benefit to the US: bringing down the national debt.

“Tariffs are working big time,” Trump tweeted, adding, “Because of tariffs we will be able to start paying down large amounts of the $21 trillion in debt that has been accumulated, much by the Obama Administration, while at the same time reducing taxes for our people. At minimum, we will make much better trade deals for our country!”, Fiscal Times online reported.

The Facts: Trump’s claim is “bizarre,” says The Washington Post’s Heather Long.

First, the president portrays tariffs as taxes on foreign companies, but the truth is that many US companies, and ultimately consumers, bear the cost.

Second, with his tax cuts and spending increases, Trump will add about $1.6 trillion to the national debt over the next 10 years ($1.9 trillion if you factor in interest on the additional debt), according to the Congressional Budget Office. The debt now totals more than $21 trillion. “The president has imposed tariffs on $85 billion worth of foreign goods so far,” Long writes, “meaning that, at most, his tariffs would raise about $21 billion, a minuscule percentage (0.1%) of the debt.”

On top of that, the Trump administration has announced a $12 billion aid package for farmers hurt by the tariffs. That will reduce the net total raised by the tariffs. “If other industries successfully lobby for similar bailouts—and already that talk is beginning—the price tag would be $39 billion, according to an analysis that the US Chamber of Commerce published last week,” Reason’s Eric Boehm notes. “As a revenue question, that would put the tariffs in the red even before you take into consideration how they could reduce future growth.”

At the conservative blog Hot Air, Taylor Millard put a positive spin on Trump’s tweet: “It is nice to see Trump throw away his farcical claim the tariffs are being done to protect national security–even if the current reasoning is as harebrained as the previous one.”

The bottom line: Trump’s tariffs won’t raise enough money to make a substantial dent in annual deficits set to climb above $1 trillion, let alone the $21 trillion national debt. CNBC’s John Harwood, appearing on MSNBC Monday morning, put it succinctly: “This is an economic gibberish argument the president is making.”

  Economic Gains Overstated

Trump is grossly overstating the extent of US economic and job gains, AP reported.

In a tweet Monday, he declares that the economy has “never been better” and jobs are at the “best point in history”.

In fact, the economy and jobs are nowhere close to historic bests based on several measures. Economists have also warned that US growth is largely fueled by government borrowing, as the federal deficit rises because of his tax cuts, and is thus unlikely to be sustainable after a few quarters.

 A look at the claims:

TRUMP: “Great financial numbers being announced on an almost daily basis. Economy has never been better, jobs at best point in history.”

THE FACTS: He’s exaggerating. The economy is healthy now, but it has been in better shape at many times in the past.

Growth reached 4% at an annual rate in the second quarter, which Trump highlighted late last month with remarks at the White House. But it’s only the best in the past four years. So far, the economy is expanding at a modest rate compared with previous economic expansions. In the late 1990s, growth topped 4% for four straight years, from 1997 through 2000. And in the 1980s expansion, growth even reached 7.2% in 1984.

It’s not clear what Trump specifically means when he declares that jobs are at the “best point in history”, but based on several indicators, he’s off the mark.

The unemployment rate of 3.9% is not at the best point ever—it is actually near the lowest in 18 years. The all-time low came in 1953, when unemployment fell to 2.5% during the Korean War. And while economists have been surprised to see employers add 215,000 jobs a month this year, a healthy increase, employers in fact added jobs at a faster pace in 2014 and 2015. A greater percentage of Americans held jobs in 2000 than now.

Trump didn’t mention probably the most important measure of economic health for Americans—wages. While paychecks are slowly grinding higher, inflation is now canceling out the gains. Lifted by higher gasoline prices, consumer prices increased 2.9% in June from a year earlier, the most in six years.

Adjusting for inflation, hourly pay for non-managers—about 80% of the workforce—fell 0.2% over the same period. Yet in 1998, for example, inflation-adjusted hourly pay growth topped 2.5%.

Trump has driven some of his economic advisers crazy—Gary Cohn most of all—with his insistence that tariffs are smart policy and hurt adversaries much more than the United States. He was at it again on Sunday with a pair of tweets about the nature of tariffs and who pays them.

“Tariffs are working big time. Every country on earth wants to take wealth out of the US, always to our detriment. I say, as they come, tax them. If they don’t want to be taxed, let them make or build the product in the US. In either event, it means jobs and great wealth.”

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