Trump Imposes the Largest Tax Hike in American History on American Consumers

According to the Trump Admin’s own estimates at $6T, Trump just enacted the largest tax hike in American history – bar none – and did it without Congressional approval. The idea that slapping tariffs on the ENTIRE WORLD is justified by the national security authority granted the President by statute is absurd. This is simply a wildly ambitious power grab by Trump to control tax rates.

Of course, the nature of tariffs – being payments on imports paid by the importer and very likely passed on to the consumer as a higher purchase cost – make this also the most regressive tax imaginable, except possibly a sales tax or value-added tax (VAT).

Perhaps the weirdest aspect of this fiasco is that Trump’s ‘reciprocal tariffs’ are not in any way that: They are instead set on a very odd scale, based on the trade imbalance of each country vis-a-vis the United States. For instance, take Vietnam as an example: we export about 10% of what Vietnam exports to us, giving a ratio of .90. That is then converted to a tariff rate of 90% and then halved (because of Trump’s beneficence…?!) resulting in a final tariff rate of 45%. That is really the basis of this nutty policy – it has essentially zero to do with what tariffs a country may be levying on American goods and instead hinges on relative trade flow.

The markets did not respond well to the news of Trump’s fiscal suicide note, dropping nearly a trillion dollars off the value of American securities markets. The financial world clearly expects lower growth and profit among American companies in the near future as a result of Trump’s financial IED.

Why is he doing this? That’s the wackiest part of the whole fiasco: no one really knows. Even his own claque of dupes heading America’s financial apparatus can’t really explain it. All they can do is exhort the world to trust Trump to run the world economy… because, you know, he is a ‘genius’ who has been grifting and failing upward his whole career in business. Certainly, a trade war with the rest of the world is not what Trump campaigned on, nor what his voters expected or wanted, least of all the rest of us.

One theory, which I find to be perhaps the most persuasive, is that Trump believes he will use the threat of tariffs as a bargaining tool to get other nations to pin their currency to the dollar to achieve executive control over global currency exchange rates. Trump imagines that this will allow him to deflate the relative value of the dollar against other key currencies while maintaining its reserve currency status. His hope is to make manufacturing in the United States much cheaper and American exports much more attractive to close the persistent trade deficits with most other countries due to a cheaper dollar. Unfortunately, the short-term result of this ‘power move’ is to seriously disrupt our foreign trade and the inflow of foreign investment, with quite deleterious and poorly understood effects on global markets and America’s economic reputation.

The trouble with Trump’s autarkic strategy on manufacturing production and global trade is that it has never worked in practice, though it has seldom been attempted by an economy on the scale of the United States. And for good reason. Many economists fear that in essentially walling off the American market with high tariff barriers, American goods and services will be reciprocally cut off from foreign markets. The result would likely be a massive slowdown in American productivity and growth – the inevitable effect of trade isolationism is for the isolated nation to invest in production and trade they have no relative advantage in, thereby impoverishing the entire nation in the name of economic independence. Workers suffer from slowing wage growth as they are increasingly employed in non-competitive sectors, with little or no opportunity to export.

For example, we have the ‘noted successes’ of this strategy: Japan during the 17th and 18th centuries; North Korea for the past 80 or so years; the Ottoman Empire of the mid-19th century; Argentina as they transitioned their economy from one of the richest in the world in the 19th century to one of the most inefficient and poor in the world in the 20th century under fascist and protectionist Peronism; and, of course, these United States prior to the Great Depression under the Smoot-Hawley tariff trade regime. None of these examples – nor the countless other economic blunders of the past and present – are good ones to follow to create a strong and dynamic economy in the global 21st-century world order.

If Americans want their economy to continue to lead the world, then our goods and markets have to face world-class competition. Our dynamism, invention, and progress rely on our exposure to world markets, not to mention world-class research and science, which Trump is also attacking in the name of anti-DEIA ideological control of our research institutions and businesses.

Therefore, what I foresee as the result of Trump’s reckless fiscal manipulations is a self-sabotage by a leading economy on a scale never seen before. We have seen plenty of second-rate and struggling nations try this protectionist route to prosperity – and it has always resulted in poverty, authoritarianism, and misery. Maybe that is Trump’s real goal after all?