Ignore the word ‘tariff’ — Trump is pitching higher taxes

Former President Donald Trump recently reiterated his belief in using tariffs as a mechanism to bolster America’s manufacturing sector. Speaking at the Economic Club of Chicago, he emphasized the idea that foreign countries would bear the costs associated with these tariffs. However, with the economy playing a critical role in the upcoming 2024 election, it’s crucial to remember that tariffs effectively operate as a tax on American citizens.

When the U.S. government imposes a tariff on goods—such as those imported from China—the financial responsibility does not fall on the exporting country. Instead, the American companies that import these goods are the ones who pay. In order to maintain their operations, these businesses often pass on the increased costs to consumers, resulting in higher prices.

This week, a popular TikTok video highlighted the disconnect in public understanding of tariffs. Podcaster Sean Kelly expressed confusion about who truly pays for these tariffs, saying, “Wait, so China’s not paying tariffs right now?” Commentary from David Pakman explained how these levies negatively impact American companies, leaving Kelly bewildered and questioning the rationale behind the tariffs.

Trump, undeterred, reiterated his stance on tariffs at the Economic Club of Chicago, dismissing concerns about their detrimental effects on consumer prices. He stated that tariffs are a beautiful concept, insisting that they would protect domestic companies and attract new businesses. However, as one commenter pointed out, it’s fundamentally simple mathematics: the U.S. imports $3 trillion worth of goods each year, and imposing tariffs generally leads to increased prices for consumers.

We’ve seen this demonstrated over the past several years. After Trump implemented tariffs on Chinese goods, the Biden administration continued these tariffs, even broadening them to cover additional products like semiconductors and electric vehicles—all in an effort to improve domestic manufacturing.

Numerous studies suggest that American consumers have already shouldered the majority of the costs associated with these tariffs. The tariffs initially put in place, coupled with the potential for Trump’s proposed tariffs upon his return to office, need to be scrutinized in terms of their economic implications.

Trump’s approach involves significantly increasing tariffs on foreign imports—up to 20% on nearly everything, with proposed tariffs of 60% on Chinese imports. He even suggested a 100% tariff on countries that abandon the use of the U.S. dollar. Such proposals have raised eyebrows among economists.

While some economists accept the use of tariffs under specific circumstances—like national security—many consider them costly. An independent analysis by the Peterson Institute for International Economics estimated that the increased costs from tariffs could average over $2,600 annually for a typical middle-income household.

Moreover, research suggests that Trump’s tariffs, along with his other policy moves, could lead to heightened inflation and stunted economic growth. There’s also a significant difference in views within the Democratic Party, with Vice President Kamala Harris describing tariffs as a “sales tax on the American people,” though she has not committed to maintaining the existing trade restrictions.

Ultimately, the romanticized notion of tariffs does not reflect their reality. Prices are likely to rise, and there are risk factors of retaliatory actions from international trading partners. As one financial expert succinctly put it, “It’s a 2-year-old’s mentality; you punch someone in the nose and expect them not to punch you back.”