Still unclear is whether Trump plans to levy individual tariff rates on all US trading partners; put tariffs on only some countries; or apply a universal tariff â perhaps as high as 20% â on all imports.
A piece I saw on the wire earlier today said the 20% on everything is gaining traction, because being reciprocal, or different rates for different countries or products, is too much work. Recall, the objective is generating enough revenue to replace the income tax, period. The âvictimâ narrative is just the excuse being fed to the Proles.
Steve
So, we are about to have an another intelligence test for the bottom 7/8 of the population as to income. Do you want to pay more for just about everything you buy and use regularly, while waving the income tax good bye?
You gotta hand it to them. âLiberation Dayâ is a whole heck of a lot catchier than âPunching Ourselves in the Ding-Dong Dayâ.
That sort of narrative has worked on the mob for years, promise them that another huge handout to the rich will, somehow, eventually, benefit them.
Steve
Goods imports into the U.S. are âonlyâ about $3 trillion, so a 20% on everything tariff wouldnât generate nearly enough money to replace the income tax. Even if no one changed their importing behavior in response to the tariff, that would only yield about $600 billion - compared to the $2.4 trillion in income tax receipts. And, of course, people will buy fewer imports in response to the higher taxes, so the tax receipts will not even be as high as $600B.
Take the rest out of spending. Collateral damage doesnât matter. TIG wants a free ride.
Steve
Start with a daily keel haul.
More is relative.
When you see many people or perhaps yourself unemployed and there is deflation.
As unemployment rises it has an inverse relationship with tax receipts.
Would unemployment necessarily rise? As in âPlan Steve for Chryslerâ circa 1979, tariffing imported cars out of the market would not mean people would stop buying cars. People would shift to US built cars instead, increasing employment in US plants.
Would government revenue drop in that scenario? Tariff revenue would fall short as imports fell, but more people would leave their WalMart greeter jobs behind, for better paying auto plant jobs, and pay higher tax on their higher income.
But what if the income tax is zeroed out, as is the stated objective of TIG? People earning more money, because they work in an auto plant, instead of WalMart, would spend moreâŚwhich leads to the tariffs evolving into a national sales tax, the âFair taxâ that Mike Huckabee was touting some years ago.
Steve
Yes, unemployment is expected to rise.
Industries that manufacture finished goods protected by tariffs will potentially gain some employment. However, industries that rely on imports of component goods and raw materials will lose some employment. And because consumers are paying more for goods overall, every industry (for the most part) will see a reduction in consumption due to that income effect.
If the tariffs were confined only to the U.S., it would be theoretically possible for enough of the tax incidence to be born by foreign suppliers to make these effects kind of neutral. However, that wonât happen - the U.S. will be hit with retaliatory tariffs from almost every country that we are adding a tariff. So while domestic auto manufacturers might theoretically see an increase in demand for their goods, U.S. agricultural producers will face a marked reduction in demand.
The overall effect of a large new tax on the economy is a deadweight loss, which is why a trade war is considered likely to cause a recession. The most likely impact on employment is to increase the UP rate. Especially since cutting workers can be done in the short term (and is easily reversed), but reallocating capital to expand production (like building factories) takes longer - and firms will be reluctant to do that, since Trump has been so inconstant in his tariff policy that they canât rely on any given tariff lasting long enough to justify an investment.
Yes because employment will slump in other parts of the economy. Less consumer demand means a slump in auto sales domestic and foreign. Layoff more workers rinse and repeat. It is a spiral.
He may be gutting the economic automatic stabilizers like unemployment, food stamps, and agencies that could help people in general. This frees the spiral to go further.
If some foreign cars do not sell then people are laid off, ie salesmen and womenâŚetcâŚtruckers etcâŚ
Just a case in point. Produce in supermarkets will not sell as quickly. Fewer workers or fewer manpower hours. Declining supermarket revenues.
Yes, a yin/yang thing. When Chrysler was holding itâs employees hostage to extort a handout from the government, in 79, I held that, if Chrysler went out of business, there would be no net loss of âjobsâ, because people would not suddenly stop buying cars. The Chrysler customers would simply shift to Ford and GM, and those companies would need to add staff to satisfy the additional demand.
In the present situation: if imported home appliances are tariffed out of the US market, the 9 US factories that Whirlpool runs, would need to add staff, because people would not suddenly stop buying home appliances.
If the Mexican built Chevy Equinox and Jeep Compass are tariffed out of the US market, people would not suddenly stop buying compact SUVs. Ford would need to add shifts to its Louisville plant, that has been turning out Escapes at half, or less, of itâs capacity.
Even if the US slid into a recession, would the layoffs, effectively, be exported, by forcing the reduction in sales volume to be taken by companies that export to the US?
Steve
No. Mostly because of what often gets overlooked in these discussions: the income effect to consumers.
If we imposed a huge tariff on imported cars, it is true that eventually those cars might be built in the United States, not abroadâŚwhich looks like a win-win for the U.S., right? Except that the average price of cars will go up, ceteris paribus. The tariff works by raising prices on foreign vehicles, which makes them more expensive - and since Ford and GM are now competing against more expensive cars, they can now increase the amount of product they supply by charging more for their domestic cars.
Thatâs a win for GM and Ford and their specific workersâŚbut everyone else in America loses. They now have to pay more for their cars. That makes them poorer, overall. They now have less money to spend on other things.
Itâs similar to the âbroken windows paradox.â If you break a shopkeeperâs window, and he has to hire a glazier to fix it, it looks like youâve created economic activity - the glazier now has a job he didnât before, and money is trading hands that wouldnât have done so. But obviously breaking windows is bad, and canât possibly be something that makes everyone better off. The reason you canât stimulate the economy by breaking everyoneâs windows is because now the shopkeeper now has less money to spend - so the things he would have done with that money now donât get done because he has to replace his window.
Economy-wide, the estimate is that an across-the-board 20% tariff on all imports would reduce American household purchasing power by about $4K to $5K. Thatâs how much more Americans will have to spend to buy the same bundle of goods they would expect to buy, or how many fewer goods theyâll get to buy to keep the same expenditures. Which is great for the industries that are going to be most benefited by the tariffs, but terrible for everyone else.
OhâŚand all of this disregards the other negative effect, which is the inevitable responsive tariffs from the other countries. So when we tariff the imported cars out of our market, they tariff our exported soybeans and whiskey and finished gasoline out of theirs.
Automakers have been able to escalate prices, for years, enabled by ever longer financing periods. You canât buy a compact, or subcompact, from the big three anymore, because they donât feel a need to offer them. So, is âaffordabilityâ really an issue? Plenty of people squawk about âaffordabilityâ, but the big three care not one whit. I can tell you how a car salesman will deal with a $10,000 bump in the price of a car: "thatâs only about $100 more per month (if that doesnât work, heâll say â$25/weekââŚif that doesnât work, heâll say âless than $3.50 per day, the price of one cup of foo foo coffeeâ) until the customer agrees that fretting about the price is silly.
Steve
But that is not the argument one hears when a union strikes and forces a large increase in the price of labor â think recently of the UAW with the automakers and the Teamsters at UPS â increases of some 35%. We are told the workers at Ford or UPS now have more money to spend, even though âeveryone else in America losesâ.
DB2
What is the rationale behind fashion? If your spouse buys four pairs of shoes every year then he/she has less money to spend. At the same time the apparel industry and its workers are improved.
DB2
Itâs not about âaffordability.â Itâs about purchasing power - the income that the consumer has to allocate to purchase the good. If the car is more expensive, itâs more expensive. It requires more of the consumerâs wealth to acquire it. The automaker can adjust the terms and conditions so that the consumer has the ability to buy the car even if they donât have the liquid cash up front at the moment theyâre making the buying decisionâŚbut the effect on the consumerâs wealth canât be changed.
Cars arenât fungible objects so this discussion has a ton of simplifying assumptions. But generally speaking, if GM is only producing X number of vehicles at $Y price, it means that they canât produce more than X cars at that $Y price without reducing their profit. If they could earn more than $Y, theyâd make more - but since they can only charge $Y they only make as much as they do. If thereâs an exogenous shock to the market - all the imports disappear - then GM can now charge more than $Y per vehicle, so they can make more of them. But that means all their customers are now paying more for the cars, so those customers have less money to spend on other things.
So GM might hire more workersâŚbut we would expect the rest of the economy to contract slightly.
Thatâs true. Unions represent a partial labor monopoly, which results in a deadweight loss to the overall economy in the world of uber-simplified âEcon 101â microeconomics. The traditional justification for unions is that labor markets donât operate efficiently and that employers tend to have monopsony power, so countering that monopsony power with union monopoly power actually gets you closer to the market clearing efficient outcome than the status quo.