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Tariffs are bait and switch economics paid by consumers

By Christopher R. Gibbs

Sometimes those teachable moments just fall right into your lap. I recently watched with pride while my son and his young family signed a purchase contract on their first piece of brand new farm equipment. A shiny new aluminum livestock trailer ready for service in their cattle business. Trying not to hover, I milled around the showroom and caught a glimpse of the television hanging on the wall. It was the Saturday afternoon when the president was speaking at the Conservative Political Action Conference. Although the sound was muted, the FOX chyron at the bottom of the screen boasted, “President Trump: Billions of dollars are pouring into the treasury from China.” Say what? He really didn’t say or imply that did he? He can’t really be making trade policy supported by a fake alternate fact like that can he? The raucous crowd can’t be that gullible can they? Oy vey! Say it ain’t so!

In a moment that I could only describe as “you can’t make this stuff up,” I headed back to the sales manager’s table where my son was literally signing his name to that $17,000 contract.

“So,” I said, “How much did the Trump aluminum tariffs just cost my son?”

Without hesitation and without even looking up he curtly informed, “10%.” I responded to the salesman for the benefit of my son.

“So, before the Trump tariffs, this same trailer would have cost him about $15,500”?

The one word explanation was short and to the point: “Yup.”

A year ago, the president levied punitive tariffs on foreign steel and aluminum claiming a national security concern under the Trade Expansion Act. In the full year hence I’ve railed against this populist protectionist trade policy and its devastating effect on American agriculture from both the tariffs imposed and the retaliation which followed. When farmers buy, they buy equipment made of aluminum and steel. We have skin in the game. Through the period I’ve tested folks knowledge on how the Trump tariff mathematics work and how they cost U.S. agriculture and U.S. consumers. Eight in 10 believe that China, the European Union, Mexico, and Canada are paying the Trump tariffs as their country’s goods enter the U.S. The president knows this is an untruth, but the perennial narrative of “everyone is treating us unfairly” (insert whine here) works better if farmers and the rest of the American public are led to believe that importing countries are pouring their Yuan, Euro, Peso and Canadian dollars into the U.S. treasury in the form of tariffs.

Please don’t get the wrong impression thinking this is an “oh woe is me” story about my son’s checkbook. Better, let me focus your attention on your own personal finances to explain how the president has replenished your wallet with his left hand while taking from your pocketbook with his right in an insidious multibillion dollar bait and switch.

 

First, the left hand giveth…

In 2017 the president signed the Tax Cuts and Jobs Act, which provided tax relief for businesses and individuals. Those cuts became effective in 2018 and put more money in U.S. consumer’s wallets by starving the U.S. treasury. Predictably, U.S. consumer balance sheets went up while the U.S. treasury balance sheet went down. While we were all celebrating, in March of 2018 the president and his trade advisors saw this as an opportunity to drive a giant Mac tariff truck right through our own personal finances.

 

Thence the right hand taketh…

Goods being imported to the United States from foreign countries are purchased from overseas companies by a U.S. manufacturer, retailer, or wholesaler. That importer most likely has a U.S. factory and certainly employs U.S. labor, pays U.S. utilities, pays U.S. taxes, and most importantly is a U.S. citizen. It’s an American company. Maybe that importer paints an American flag on the import. Maybe they weld something to it and change its substance, or maybe they simply wholesale it to Walmart for a direct no value added retail sale. Regardless of the variables in the supply chain, one cold hard fact is constant. American companies pay all of the Trump import tariffs. And those import tax dollars go directly to the U.S. treasury. The importer then passes the import tariff tax on to the American consumer as an increase in the costs of goods sold. In the aluminum livestock trailer business, it’s apparently a direct 10%. Some industries a little more, others a little less. When you shop on-line at Amazon, visit Walmart, or buy a car part at your local auto supply store you pay the increased cost of the Trump tariffs. No alternative fact or fake news here, just pure bait and switch economics.

Tax reform resulted in your wallet getting fatter while the U.S. treasury went on a diet. That allowed room in the U.S. economy for the Trump tariffs to give the U.S. treasury a bulking up by taxing U.S. importers while at the same time consumer wallets were thinned down by increased costs for purchases. Personal balance sheets are back to where they started and the American consumer is no better off, but by golly we’re all suppose to be happy about it! Class dismissed.

 

The writer and his family own and operate 600 acres in Shelby, Logan and Auglaize counties. They raise corn, soybeans, hay, and cattle.

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One comment

  1. Let me get this straight.
    So its a net net zero for the American consumer after the tax breaks and then the tariff costs? Right?
    But in the meantime we put America first in relationship to the Chinese trade war. No more intellectual property theft, no more caving to the Chinese on every trade deal, right?
    Sign me up! What took us so long to figure this out?
    MAGA!

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