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How Trump’s Tariffs May Kill The Economy

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How Trump’s Tariffs May Kill The Economy

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Donald Trump tweeted in May that by imposing a 25 percent tariff on $250 billion of Chinese goods “China would greatly slow down, and we would automatically speed up!”

But that’s not what’s happening, the Organization for Economic Cooperation and Development (OECD) reported today. Economic growth is easing in developed countries with one big exception – China.

In a report released today, the OECD provided four revealing graphics covering the United States, the 32 OECD countries from New Zealand to Austria, the Eurozone which uses a common currency and China.

Notice that each line ends on the right pointing down except for China, which is trending up.

The blue triangles above indicate the start of clear trends showing either improved economic growth or slowing growth. Triangles without shading indicate trends that are not so clear and may reverse.

There are signs aplenty that the American economy is slowing down. In May just 75,000 new jobs were added, bringing the average so far this year down to 164,000 jobs, well below the kind of job growth since the recovery from the Great Recession started in early 2010.

Manufacturing jobs, which Trump said would blossom on his watch, were flat in May. Give that U.S. exports of goods fell by 4.2% in April the outlook for manufacturing jobs this summer is not good.

Don’t expect Trump to speak of this, however, at least not in any logical and structured way. The self-proclaimed “very stable genius” demonstrates again and again that he doesn’t understand economics even though in 1968 Penn gave him a degree in the dismal science.

While Trump claims to be a world-class expert on tariffs, his own words show he does not even understand the basics. Consider this tweet:

Wrong. Totally, completely, 100% wrong.

Tariffs are paid to Treasury by American companies that import goods, not China.

Companies that import Chinese goods must either absorb the cost of the tariffs, which makes them less profitable or pass the cost on to consumers by raising prices. Guess which option is overwhelmingly more likely.

Raising prices on imported goods to cover the cost of the Trump tariffs means that domestic companies can raise their prices, too. Generally, domestic companies can hike prices up to the level of the imported goods plus tariffs.

That means American consumers pay more even if they buy American made products instead of imports from China.

Companies that import goods from China could move production here. The problem is that this is not just expensive, and takes time, but the money would be wasted if Trump suddenly ends the tariffs.

That is exactly what we say with Trump’s vow to impose a five percent tariff on goods imported from Mexico starting Monday, June 10. Trump reversed himself before the Mexican tariffs would have taken effect, claiming he had just made a great deal with Mexico.

Trouble is, Mexico agreed to some Trump demands late last year, as the Trump administration told Congress in December.

The smart money holds that Trump never intended to impose those tariffs, which were part of a ploy to proclaim himself a great negotiator who got Mexico to change its policies.

And the claim by Trump and Pence that they just reached a secret deal with Mexico that will soon become public? The Mexican government says that’s sheer fantasy.

While Trump proclaims himself the greatest ever tax-cutting president his administration has nearly doubled tariffs on imports.

Tariffs are taxes. They function like the retail sales tax added to your purchases at the cash register except that they are invisible to you since no law mandates listing tariffs on receipts. Think of Trump’s tariffs as a stealth tax hike on consumers.

Since the start of the 2019 federal budget year, which began Oct. 1, tariffs totaled just shy of $40 billion, Treasury data shows. That’s almost double the tariffs imposed during the same period three years ago under former President Barack Obama.

Trump insisted Monday, June 10 that he will soon have a great trade deal with China.

“China will, in my opinion, based on a lot of facts and a lot of knowledge, China’s going to make a deal because they’re going to have to make a deal,” Trump told Joe Kernen of CNBC.

Then Trump veered off into nonsense. “If you look at China, China, as great as they are and they are great, they are near the capability of our geniuses in Silicon Valley that walk around in undershirts and they were not $2 billion a piece.”

Even Trump can’t have meant what he said, talking of underwear that costs $2 billion per piece. Let’s hope so.

But delusional statements, which I’ve watched Trump make for three decades, permeate much of what he says.In the past Trump has told lurid tales of imaginary lovers and imaginary executives, as I documented in my biography The Making of Donald Trump. On CNBC Monday Trump called upon his imaginary “they” to invent a conversation with the paramount leader in Beijing:

President Xi, we have a great relationship.

I say, “How is it possible that you got away with this for so long?”

And he said, “Because nobody ever asked us to change.”

It’s true.

And they said to me, “We expected that somebody would call and say, ‘You cannot do that.’ Nobody called so we left it.”

And I don’t blame them. We should have been doing the same thing to them. But we didn’t.

What’s going on here? Fear. Trump lives in fear. He fears people will see his tax returns and bank records, exposing his claims of being worth billions as pure fantasy. He fears what those around him may say so he makes them sign lifetime nondisclosure agreements.

How fear of China consumes Trump was revealed in a story that did not get much attention in April.

Flying back from China on Air Force One, Trump telephoned former President Jimmy Carter, who in 1979 normalized diplomatic relations with Beijing.

Trump expressed fears about China overtaking the United States as an economic and political power, Carter told his Sunday School class at Maranatha Baptist Church in Plains, Georgia. “China is getting ahead of us,” Carter quoted Trump as saying.

Carter then made an interesting point, noting that the United States has been in wars for all but 16 years since its founding 242 years ago.

Wars are a costly drain on an economy, diverting money that could go to productive civilian use into financing the death and destruction caused by bombs and other weapons. Much of the cost of war is spending overseas rather than at home, exactly what Trump claims is the reason he imposed tariffs on Chinese goods.

Emma Hurt, a reporter for WABE public radio in Atlanta who broke the story, quoted Carter as saying China is not engaged in war anywhere and has not been for decades:

Carter suggested that instead of war, China has been investing in its own infrastructure, mentioning that China has 18,000 miles of high-speed railroad.

“How many miles of high-speed railroad do we have in this country?”

Zero, the congregation answered.

“We have wasted I think $3 trillion,” Carter said of American military spending. “… It’s more than you can imagine. China has not wasted a single penny on war and that’s why they’re ahead of us. In almost every way.”

Trump just sent ships and troops to the Middle East in what he said he hopes will not become a war with Iran. That is a reversal of his campaign promise to get America out of Middle East combat.

But, hey, Trump tariffs are sure to make China poor and all that money Trump imagines is flowing into the Treasury Department will pay for any new wars, right?

Only in Donald’s jumbled mind. Meanwhile, hold fast to your wallet if you can because Trump’s tax increases, euphemistically called tariffs, are going to make it thinner.

 

 

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David Cay Johnston

David Cay Johnston won a 2001 Pulitzer Prize for his coverage of taxes in The New York Times. The Washington Monthly calls him “one of America’s most important journalists” and the Portland Oregonian says is work is the equal of the great muckrakers Ida Tarbell, Lincoln Steffens and Upton Sinclair.

At 19 he became a staff writer at the San Jose Mercury and then reported for the Detroit Free Press, Los Angeles Times, The Philadelphia Inquirer and from 1995 to 2008 The New York Times.

Johnston is in his eighth year teaching the tax, property and regulatory law at Syracuse University College of Law and Whitman School of Management.

He also writes for USA Today, Newsweek and Tax Analysts.

Johnston is the immediate past president of the 5,700-member Investigative Reporters & Editors (IRE) and is board president of the nonprofit Investigative Post in Buffalo.

His latest book Divided: The Perils of Our Growing Inequality an anthology he edited. He also wrote a trilogy on hidden aspects of the American economy -- Perfectly Legal, Free Lunch, and The Fine Print – and a casino industry exposé, Temples of Chance.

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