We’re informed by America’s expert class that Donald Trump’s tariffs, money paid to the government when an item from overseas is purchased for use here, are disastrous.
We’ve been informed for 30 years by America’s expert class that consumption taxes, such as sales taxes, airline ticket taxes, gasoline taxes, etc. are good. In fact, one way to make America better would be to have a European-style 20 percent value-added (consumption) tax, i.e., money paid to the government when an item from overseas is purchased for use domestically (and also when a domestically produced item is purchased). Trump’s 10 percent general tariff plus California’s 10 percent sales tax rate (varies a bit by city/county) comes pretty close to the European average of 22 percent consumption tax (VAT).
Our elites also say that what would really deliver us the paradise on Earth to which we are entitled is a carbon tax. We consume too much, especially of transportation, and the result is epic CO2 emission. A consumption tax, especially for things that have to be transported long distances, would go a long way to healing our beloved Spaceship Earth. A tariff, of course, isn’t a laser-targeted carbon tax, but it is most certainly better than no tax at all for plastic being made in China and then shipped across the wide Pacific Ocean.
Finally, we’ve been told by experts for at least 20 years that we are undertaxed (our structural annual budget deficits certainly lend some credence to this theory!). The government needs more revenue of all kinds so that it can do great things for us.
Trump’s tariffs may simply be a prod to negotiating lower tariffs and non-tariff barriers in other countries to U.S. exports. But even if they were to be applied long-term, based on everything that elites and progressives have previously said, shouldn’t they be a positive for both the U.S. and for the world? Why the hysteria from Democrats when higher tax rates, carbon taxes, and more government revenue are precisely the things that they’ve been asking for?
A neighbor’s house this morning, below. Why wouldn’t a progressive celebrate discouraging the importation of a gas guzzling Porsche 911 like the one in the photo (daily driver parked on the street because the homeowner’s garage is presumably full with the valuable cars). This homeowner could have used a nudge in the direction of a planet-healing domestically produced Chevrolet Bolt instead.
The whole situation is almost as confusing to me as climate change alarmist Senator Mark Kelly’s switch from Tesla to pavement-melting gasoline-powered Chevy Tahoe. Trump has seemingly delivered almost everything that elite progressives have asked for and yet they’re forecasting a doom spiral.
Related:
- “Trade, Firms, and Wages: Theory and Evidence” (Amiti and Davis 2011), in which economists from the Federal Reserve Bank of New York, Queers for Palestine University (a.k.a. “Columbia”), and NBER, found that high tariffs boosted wages for workers “at import-competing firms”
- “There’s a Method to Trump’s Tariff Madness” (New York Times! Guest essay by a young history professor): “They are the opening gambit in a more ambitious plan to smash the world’s economic and geopolitical order and replace it with something intended to better serve American interests. … it seeks to improve the United States’ global trading position by using tariffs and other strong-arm tactics to force the world to take a radical step: weakening the dollar via currency agreements. … some sort of reset of the economic order probably makes sense for the United States.” and then the more familiar NYT perspective… “But the slash-and-burn approach of the Mar-a-Lago Accord isn’t the answer. For one thing, it is hard to find an economist outside of Mr. Trump’s inner circle who thinks it is a good idea. But even if, despite all the chaos it will unleash, the United States eventually prospers as a result, we will have traded away the core economic and political values that make America truly great. … The most valuable asset of the United States is not the dollar but our trustworthiness — our integrity and our values. If the world envisioned by the Mar-a-Lago Accords comes to pass, it will be a sign that not only our currency but our nation has been devalue” (My rating for this last sentence: Completely FALSE! Our most valuable asset is the entire continent that we stole from the Native Americans! As a thought experiment, imagine if the roughly 350 million Americans lived on the territory of Sudan. How rich would we be?)
“Trump’s tariffs may simply be a prod to negotiating lower tariffs and non-tariff barriers in other countries to U.S. exports.” Wishful thinking, in my opinion. At this point, the issue isn’t the tariffs—it’s the destruction of relationships with close allies and the erosion of trust that other countries and their citizens once had in our nation.
America doesn’t have a trade problem. The real problems we face are the deficit (driven by a predatory healthcare system), a struggling education system, and a crisis of values. Unfortunately, none of these issues appear to be a priority for the current administration.
(I will acknowledge one achievement, however—the effective elimination of capital gains. Bravo!)
Anon, by the “destruction of relationships” do you mean those that our “close allies” have perpetuated on us over the past 50-60 years? You may not realize, but what most people in the U.S. (and world) are now learning (or finally internalizing what they should have already known) is that there has *not* been free trade (from a U.S. perspective) over the past 50-60 years with almost every country. And to top it off, we also pay nearly the *entire* defense bill (both blood and treasure) for all our ostensible “friends and allies.” Trump is correct that many of our allies have been the worst actors as they’ve subsidized their socialist economies and woke ideologies on our backs (e.g. most countries in Europe). Perhaps you meant to say: “at this point many of the trading partners of the U.S. have been exposed as scammers, and also that Trump has told them we in the U.S. will no longer be suckers”??
@Anonymous (the second),
The average EU tariffs to US products are about 3%, not the bullshit 39% that Trumps was given by a staffer using ChatGPT. That is pretty close to free trade. Note that the EU also has no tariffs for US services, which seen by your perspective have also been sucking the EU people dry. The current trading system has been mostly engineered in the US, and the US has profited handsomely off it, much more than the typical EU country. Just how exactly did you subsidise the EU defence bill? Remember that EU countries buy ridiculously overpriced US hardware (F35 comes to mind) and generously compensate the US military-industrial complex. You provided the nuclear umbrella, missile shield and radar stations. But those were also mostly in your own interest, so you could destroy Russian missiles before they got to the US! The US was the only NATO member ever to invoke article 5, and many European countries paid back with blood and treasure to go to your assistance. Several EU countries outspent the US on a per-capita basis to support you on your Iraqi adventures.
It’s funny how the MAGA crowd follows their leader without question, and is tremendously ignorant of history. The EU project was mostly devised and encouraged by the US to ensure that countries would work together and not build massive armies and annihilate each other (and the US) in the process. EU countries played by US rules, prospered after devastating wars and ensured there were no major wars on the continent until Ukraine.
By all means you are free to reconsider tariffs, defense, and your relationship with Europe. But base it on real data, not the bullshit that Trump spews. The EU even offered 0% tariffs before the madman went on the latest spree. There is no logical explanation, just like imports from Canada are not a threat to US national security. There is no end goal, and no point that can be addressed to resolve the issue.
Jarle: Other than Democrat-run media assertions, what’s the evidence for “It’s funny how the MAGA crowd follows their leader without question”? I think there is much less support among Trump voters for tariffs than for closing the border and deporting Queers for Palestine and MS-13 members.
Jarle, a couple of facts you might consider (and please pass on to others):
1) In 2023 (latest data available), tariffs paid by U.S. companies to other countries were $250-300b and tariffs paid non-U.S. countries to the U.S. were $77-80b. Folks in the U.S. look at these numbers and agree with you (they are “bullshit”).
2) Beyond tariffs, U.S. companies are excluded from European countries by non-tariff exclusions (dozens and dozens of quotas, regulatory restrictions and other measures that effectively prevent the import of U.S. products).
3) In 2024, NATO allies collectively spent ~$1.47b on defense. The U.S. accounted for $967b of this (66%). Folks in the U.S. look at this and agree with you (“bullshit”).
3) European countries buy U.S. defense products because they have almost no defense industry of their own. They’ve been freeloading on the U.S. for 50-60 years and let their defense industry die, all while subsidizing socialism and wokeism. Look back at news stories over the past 3 year when Europe tried to supply Ukraine with anything–they had virtually no ability to produce!
It’s a free world and folks in Europe can run their countries on socialism and wokeism if they choose, but folks in the U.S. are tired of subsidizing both companies/countries that can’t compete on a level playing field and also at the same funding the defense of same countries.
Jarle, nuclear shield for US in Europe? Quickest trajectory for ICBMs from Russia to US is through Pacific , across polar circle and from Soviet/Russian submarines. UK and France are making own aircraft carriers and nuclear submarines Europe makes Grippen, Eurofighter and Rafale jets.
Philip. why VAT applies to products not made under European jurisdiction?
How is it different from tariff then? Is it to level playing field for European manufacturers? That what Trump advocates for American manufacturers with tariffs
@Anonymous
1) I don’t understand how US companies can pay tariffs to other countries. Tariffs are paid by the importer. Unless you mean having a US company in e.g. the EU importing US goods into a country, there’s no way they’d be paying tariffs to a foreign country. Have a look at the facts:
https://ttd.wto.org/en/analysis/bilateral-trade-relations/show?member1=U918&member2=C840
The trade-weighted average tariff the EU charges on US goods was 1.7% in 2024, while the US charged on average 1.4% on EU products. Doesn’t really seem that the EU is screwing the US.
2) I suspect the quotas you are referring to are for tariff-free agricultural products. After reaching the quota, tariffs apply, and for agricultural stuff they are indeed much higher (but see above). The EU is a sovereign block of countries and they have the right to set up the rules on what gets sold in the single market. We have stricter rules on food production, emission standards and so on. But the playing field is level, because EU producers also have to abide by the same rules. Or are you saying that the EU should just allow anything to be sold here and does not have the right to set their own rules?
3) Indeed the EU has a much smaller defence industry. But since we have been paying for US-made stuff, how is that freeloading? The US spends a lot on defence, we agree. But how exactly was that expense spent on defending Europe? The US makes good use of bases in EU countries (and e.g. Greenland) for their own defence purposes. It’s unreasonable to compare the needs of the Ukraine war with the production capability in Europe, which is not in a war economy. Even the US struggled with producing enough (e.g. even old-fashioned systems like HIMARS). The US was getting a great deal giving away near obsolete stock for Ukrainians to destroy they nr 1 foe’s army, while using budget funds to get the US army the latest tech. Any dollar given to Ukraine to kill Russians is much more efficient than if the US had to kill Russians in the first place, but that is a different story.
You still have presented no coherent argument on how exactly the US is subsidising the EU. If you believe like Trump that this is because the balance of payments, maybe you could consider that trade is not a zero sum game, and that countries can prosper (indeed, as the US has) with a negative balance of payments (for the reference, most EU countries also have a deficit themselves!).
Also, on the issue of negotiations: Let’s not forget that Japan attacked Pearl Harbor with the goal of forcing the U.S. to “negotiate for peace” and, among other things, lift its oil embargo. And sure, you could say Japan did achieve those goals—by 1946. After total devastation, unconditional surrender, and a couple of atomic bombs. So you could say that a brief period of catastrophic suffering did eventually lead to an era of immense prosperity.
I don’t get, why tariffs on US products are bringing word peace and harmony but US tariffs are compared with starting WWIII? We still support our friends who we imposed tariffs on. militarily, diplomatically and in security domain. Trump is bombing Houties to keep Suez open for Europe because Europe is not able to protect Suez from Red Sea. US -bound trade through Suez is minimal. US supports Japan, Taiwan, Israel, Philippines, etc…
Aren’t republicans against consumption and carbon taxes? If the widespread tariffs are “the same”, shouldn’t republicans be against them too?
Do any of the consumption/carbon taxes match the tariffs in cost or extent?
The stock market is some degree of “testing” an idea. Did any consumption/carbon taxes cause an equivalent drop in the market? Seems like the market sees tariffs as being worse than a global pandemic.
Also, the way the tariffs were computed appears to be deranged.
davep: I don’t think that Republicans are against consumption taxes. Most of the states run by Republicans have sales taxes, for example. Do any European VAT rates match the proposed tariffs? As noted in the original post, the match is quite close for an item from Europe sold in California (10% new Trump tariff+10% California sales tax) vs. an item from California sold in Europe (22% VAT).
Republicans are on record as being against a VAT in addition to our current personal income tax system and in favor of a VAT as a substitute for current income tax system. See https://thehill.com/policy/finance/68445-value-added-tax-has-some-gop-backers/ from 2010, for example. Ironic: “Five Republican House members are co-sponsors of a bill by Rep. Bill
Pascrell (D-N.J.) that would impose a border tax on imports
similar to an importing country’s VAT if the U.S. government
couldn’t negotiate a way to cut trade imbalances.” (same exact idea, 15 years ago!)
Republicans does not have any principles. Till they are making money they are capitalists , when they start loosing money they become socialists and look for GOVT money, remember Busch and Paul Hank,…..
Americans, in their uniquely forward-thinking way, have decided that public debt is the most elegant form of taxation—just not for themselves. Instead of paying for government spending now, they hand the bill to their children and grandchildren, neatly disguised as debt service. It’s taxation, just delayed and with interest! What a noble tradition: borrowing today so future taxpayers can enjoy the thrill of paying for things they never voted for. Much better than income, real estate, or value added taxes.
Philly: “I don’t think that Republicans are against consumption taxes. Most of the states run by Republicans have sales taxes, for example.”
This doesn’t establish that republicans are *for* sales tax. It could be that they don’t see a practical/achievable alternative. There are four other points in my post that you didn’t comment on.
Consumptive taxes are regressive. Like tariffs. So, republicans might be in favor of both. Though, the stock market seems to be clear about tariffs (especially) not being a good idea. Maybe, the issue is doing too much, too quickly, too recklessly! The tariff calculations seem not well connected to reality.
Consumption taxes are regressive, but they’re also simple to collect and tough to cheat on, which is why the Europeans love them. Americans whose income is low are entitled to a taxpayer-funded lifestyle (housing, health care, food, and smartphone) so I don’t think a regressive method of collecting tax is a problem. We’ve already decided that the working class exists to support the welfare class.
davep: you wrote “The stock market is some degree of “testing” an idea. Did any consumption/carbon taxes cause an equivalent drop in the market?”
I guess we could look at European stocks. They have high consumption taxes and decades of lackluster stock market performance!
I’ve never seen a worthwhile argument against putting tariffs on manufactured imports that Americans are perfectly capable of making themselves. The only people who lose out seem to be profiteers who screw Americans twice over – once by moving jobs and industry overseas and again by overcharging for their cheap import wares. I could go on about how they exploit slave labor in ‘developing’ nations but protecting American industry and labor from useless middlemen seems seems like plenty reason enough.
On consumption taxes vs tariffs:
– Consumption are applied at the point of sale, and don’t impact manufacturing inputs. A tariff has the potential to hurt domestic manufacturers. Country A and B manufacture the same good, and both export. Country A applies a tariff to a raw material. The manufacturer in Country A is now at a disadvantage.
– For complex products, components could cross a border many times, a tariff can compound. A consumption tax won’t.
– A tariff will only impact imported goods. This enables domestic manufacturers to supply inferior products as foreign ones can’t compete. Over time, this compounds. Just reading articles about the “chicken tax” on light trucks and vans, Mercedes can now assemble a van Germany, disassemble it, and then re-assemble it in the US, and with all those extra steps, still manage to sell it competitively. https://sprinter-source.com/forums/index.php?threads/36443/
Absolutely correct. People don’t realise that any semi-complex good can cross international borders multiple times, car and airplane parts even more, so the tariffs accumulate.
And by the way, VAT is not the same as a sales tax, so a 10% tariff with a 10% sales tax will typically still be a lot less than 22% VAT (assuming a 100% made good). Imagine your supermarket buys a French wine for $5 and sells it for $20. With a 10% tariff and 10% sales tax, the total tax you pay is $2.5, or 11% of the purchase price (=$20 * 10% = $22). With a 20% VAT and no tariff, you would pay $4 in tax.
Richard, regarding inferior domestic goods. Didn’t Reagan resolve it but bringing Japanese competition onshore? Hi percentage of Japanese vehicles sold in US are assembled in the US and have high percentage of American – made parts, or had till Obama and Biden sold the farm.
Richard: The European VATs aren’t applied only at the point of final sale to consumers and I think that they DO impact manufacturing inputs. So the VAT has roughly the same effect on a manufacturer using an imported input as a tariff. I agree with you about the potential for compounding and double or triple taxation. The European system is more rational than any of our systems (e.g., a car that gets resold 10 times is subject to vastly more sales tax than a car that is sold just once; in Europe I think it would be subjected to VAT just once even if sold 100 times (imagine a neighborhood of 100 people and each person buys the car, drives it for a month, and sells it to the person who lives in the next house to the right).
In short, I agree with you that the tariff+sales tax scheme in the U.S. isn’t as well-designed as the European VAT, but I remain confused as to why people who love the VAT idea don’t love this move in the VAT’s direction.
Jarle: Agreed that the tariff+sales tax method of consumption tax is flawed, but most U.S. taxation schemes have absurd flaws. You pay capital gains tax if you lose money on an long-held asset (it went up in nominal dollars, but down in real dollars). You pay capital gains tax if you make money selling a house that was your primary residence, but can’t deduct a loss if you lost money (in nominal dollars) on selling a primary residence (bad news for people who owned property in failed American cities, such as Detroit and Buffalo). You’re supposed to pay sales tax in most states on buying an aircraft, but there are accountants and lawyers ready to take fees to implement a workaround. A Californian who owns a $5 million apartment building containing 20 K-12 students might pay less in property tax than a childless couple (same-sex, of course, if featured in the NYT) in the same city who buys a $1 million house (Prop 13 lets the apartment building owner pay tax based on what it cost to purchase 50 years ago).
philg: I’m not in manufacturing or tax, and am not an expert, and I don’t live in the EU, but my understanding is VAT gets charged at every step in the supply chain, but an individual business pays the VAT on their sales – the VAT paid on their inputs, so in the end, the tax is just paid by the final consumer.
As per: https://taxation-customs.ec.europa.eu/taxation/vat_en
“VAT is borne by the final consumer, not by businesses”
Further details on how this works:
https://taxation-customs.ec.europa.eu/taxation/vat/vat-directive/taxable-persons/vat-returns_en
That’s my understanding too. So if a factory in Europe imports 100 euros of stuff from the US it will pay 22 euros of VAT during the importation. If the final widget built from the imported stuff is sold for 300 euros, the buyer has to pay another 44 euros (22% of the 200 euros in added value) in VAT. So the VAT functions like a tariff on the import and both tariffs and VATs can therefore be considered consumption taxes.
https://turbotax.intuit.com/tax-tips/general/what-is-a-consumption-tax/L6Y0smof5 says “Consumption taxes can take several forms, including sales tax, value-added tax, excise tax, and import taxes and tariffs.”
philg:
> If the final widget built from the imported stuff is sold for 300 euros, the buyer has to pay another 44 euros (22% of the 200 euros in added value) in VAT.
Maybe semantics at this point?
I think the buyer pays the manufacturer 300 euros + 66 euros VAT (22% of the 300 euros).
The manufacturer then remits 44 euros on the sale, as it already paid 22 euros of VAT on the inputs.
What I don’t know:
Let’s say instead of importing that 100 euros of input, I get it locally. I still sell it for 300 euros. Isn’t 66 euros VAT still collected?
(which would make it different from a tariff, in that I’m not favoring domestic vs imported inputs)
Richard: I think that you’re absolutely right. The European system of consumption taxation generally applies equally to items made from domestic and those made from foreign components. So the latest Trump scheme could be considered “good rather than great” from the point of view of people who admire the European way of doing things. Maybe a little better than good from the point of view of people who abhor carbon emissions since imported stuff has to be transported farther.
My random person’s opinions / observations on tariffs:
– I like affordable year round fresh produce that can’t be grown where I live
– I think tariff avoidance games, like disassembling then reassembling things, create jobs, but aren’t an optimal use of labour
– Where you might create some assembly jobs – like the Mercedes Sprinter example, you’re making every delivery service and plumber that needs the van pay more for a lesser product
– The US is perhaps a bit unique, because it’s such a big market, but living in a smaller market myself, I like the variety of consumer goods available to me that wouldn’t exist if tariffs discouraged imports (eg: pick your car, small or large)
– Just looking at places that have had high tariffs – hearing stories about Brazil in the past, or travelling in the early 2000s to a place where everyone seemed to like and chose driving the locally assembled Opel Vectra – I like open markets!
Richard: Econ 101 says that you’re right about all of the above unless you’re a worker in an industry that competes with low-cost imports. Econ 101, however, doesn’t have an answer to the question of whether a temporary high tariff used as a negotiating tactic to get some other country to lower its tariffs is good or bad. Nor does Econ 101 have an answer to the question of whether it makes sense to buy stuff from your strategic rival, as Western Europe was doing with Russia (Trump pointed that out to the Germans and was derided for his naivete… a few years before Russia used money received from Germany to do some military stuff that Germany doesn’t like).
Richard, I think *everyone* loves “open markets.” Not to beat a point to death (it’s already been made here many times!), but the point Trump is making (and he is factually correct) is that most markets for U.S. products have *not* been “open” for U.S. companies (meaning there are tariffs or other exclusionary policies that are are one-sided) and the U.S. has been sucking this up for the past 50-60 years.
Good point, my comment was super simplistic econ 101. I’m not sure what to do about the worker, and would probably feel differently in that environment. Australia, from afar, seems to have done OK giving up on its auto industry and allowing imports from BYD and MG/SAIC. I haven’t read too much about what happened to the workers who were displaced when GM, Ford, and Toyota closed their doors.
In terms of security/defence, I agree there is value in doing what would be inefficient.
Richard, we are in agreement!
My expressed views above are super econ-101, and I would probably feel different if I was, or was surrounded by, impacted workers. I don’t know what to do about the worker. Australia seems to have decided it wasn’t worth having a car industry, and seems to be doing OK with imported BYDs – it is not clear to me what happened to the workforce there.
Anon: The idea of a bunch of smart well-educated people being highly productive and importing almost everything is a reasonable one. I think that’s Singapore. But the U.S. has been stuffing itself with low-skill people from countries with low average IQs. If we say that nobody in the U.S. should work unless he/she/ze/they is as productive as someone with an IQ of 115 and a master’s degree from a Queers for Palestine League school then we will have a lot of able-bodied people who never enter the workforce (which, actually, we do!).