If you’re at least vaguely aware of American (or even just global) politics, you will have heard of Donald Trump’s recent implementations of tariffs on China, Mexico, and Canada. Or wait no, he came to an agreement with Mexico and Canada to… Continue doing the same things at the border they were doing before? So Trump got rid of the tariffs. Oh, but then earlier last week he enforced the tariffs on Mexico and Canada again with no compromising. Actually, sorry, nevermind, he cancelled those too. But now he says they’ll be back in action starting April 2nd.
Truly the art of the deal.
Of course, it makes sense that Trump’s economic policies are disastrous, inconsistent, and noncommittal – Trump has never been a good businessman – of course he’s running the country’s economy into the proverbial dumpster. All you need to do is look at the history of Trump’s failed enterprises and you get an idea for how much of an idiot he is when it comes to economics. Trump Casinos, Trump Shuttle, Trump Vodka, Trump Mortgages, Trump Steaks, all went bankrupt or were discontinued within 5 years of their inception. It seems like anything with the name “Trump” in it is destined for failure, with the most obvious case study probably being the man himself.
Anyway, I can make fun of Trump all day (and will do so gladly), but I like to think of myself as a skilled writer, and that’s too low hanging fruit to be considered as talented prose. So instead I’d like to spend this article briefly covering what tariffs look like, what they do to an economy, and hopefully parsing some of the most foolhardy economic policies I have ever seen (trust me, I know a lot about Reaganomics).
So what actually are tariffs? Pretty much, they’re a tax enforced on imports by the federal government. The importing entity pays the tax to the government, and this results in that price being forked onto the consumer. In order for a company to stay profitable, it must offset the increased price of imported goods by increasing the selling price.
The intended effect of tariffs is twofold. Firstly, the government gets to collect extra revenue from taxes that it can spend on the variety of essential services it provides to citizens (which are seemingly dwindling). And secondly, it incentives companies to locate manufacturing domestically rather than in foreign factories to lower costs.
Unfortunately, in practice, neither of these effects really function as intended. Increased tax revenue doesn’t really help when it’s going to subsidize the vanity projects of billionaires that Trump’s in bed with. And more importantly, the opportunity cost of substantially higher prices for consumers to pay offsets any potential benefits. It’s estimated that tariffs in the form Trump proposed would cost an average American between $1600 and $2000 yearly. Within a day of the second implementation of tariffs, the Dow Jones Industrial Average fell by almost 800 points.
As for moving company manufacturing to the United States – this is pretty much destined to fail. As a country, the US is simply incapable, both in terms of infrastructure and availability of labor, to do all of the manufacturing work it imports domestically. The reason companies export manufacturing to other countries is generally because labor laws are a lot less protective in periphery nations like China and much of Africa. It’s a tragic reality that the regions that exploit workers the most are the ones with the most manufacturing occurring in them because it’s where it’s cheapest. While the US may be on the trajectory of returning to its history of sweatshops full of 12-year-olds, we’re not there yet, so it’s impossible to see production occur on the scale it needs to in the US to make up for so many products no longer being imported.
But wait! Honda’s moving manufacturing of one of their car models from a factory in Mexico to the United States! Tariffs must be working!
Nope.
This is not the win that Trump supporters think it is for a couple reasons. Firstly, manufacturing doesn’t even start until 2028, so it’s not like we’re gonna see the benefits of that any time soon. Secondly, Honda isn’t an American company – it’s Japanese, so it’s not like those profits are going to be reinvested in the American economy. Thirdly, the factory where cars are being manufactured isn’t even a new factory. No new workers will be employed. No jobs will be created. All that is effectively happening is that Honda is changing which car they manufacture in this specific factory in Indiana. And fourthly, those cars are going to be much more expensive anyway because the labor behind their creation will be much more expensive. There are literally no benefits from this.
Now, this brings us to the question: if all of these factors make tariffs a horrible idea for literally everyone – uber-wealthy and working class alike – why is Trump attempting to implement them?
It’s easy to attribute the idea to pure incompetence and idiocy, which I think certainly plays a role in it, but I think there is some strategy to it. The rapid enforcement and rescinding of tariffs is effectively being used as an easy way to create the impression among citizens that Trump is doing something. Trump loves to cast himself as a strong man in politics, using his incredible testosterone and business skills to force other countries into doing what he wants. This obviously doesn’t work, usually ending with Trump making concessions himself, and losing soft power in the process. But it’s absolutely essential for Trump’s popularity for him to maintain the optics of a powerful ruler making other countries cede to his commands.
Unfortunately for Trump, tariffs are a really bad policy, so he can’t enact them for any substantial period of time. So it creates this loop of enacting tariffs, creating fake concessions with Mexico and Canada, and getting rid of the tariffs as he writes home to his constituency about how he forced Canada to finally crack down on all of that fentanyl they have everywhere. No matter what Trump does, in the vision of his supporters, it will be an economically genius move. He just needs to keep playing the part for them.
It’s the art of the deal.
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