At this point, there’s no utility in trying to explain to anyone who still doesn’t understand how all of this works, that Donald Trump is mischaracterizing tariffs.
We’ll just say this one more time because it feels obligatory: Tariffs are a tax on consumers and they are enormously irritating for companies whose bottom lines are squeezed by rising input costs. That goes double at a time when wage pressures are materializing thanks to a tightening labor market. Management teams can either eat these costs to the detriment of profitability, or they can raise prices to consumers. Either way, it’s “not good, not good” – to use Trump’s own lexicon.
All of that is to say nothing of the deleterious effects of retaliatory measures taken by countries targeted by the tariffs. As we’ve seen, those tit-for-tat escalations and efforts at import substitution on the part of buyers abroad can be ruinous for some American businesses.
Trump doesn’t have a good grasp of macroeconomics (just ask Janet Yellen) which means he likely doesn’t understand all of the above, but perhaps more importantly, he doesn’t care.
The fight with China is first and foremost an ego thing for him and the longer it drags on, the more true that assessment becomes. Unfortunately, his base knows even less about economics than he does, and they love the idea of “getting back” at purportedly nefarious Chinese devils who, according to Trump, have been “ripping off” America for years.
And so, “tariff man” is free to fight this battle in perpetuity.
On Friday morning, hours after the US hiked the tariff rate on $200 billion in Chinese goods to 25%, Trump took to Twitter and unleashed a convoluted verbal barrage so long that it took 11 tweets to cram it all in. Here’s the full “statement” (and this is edited to remove duplicate tweets):
Talks with China continue in a very congenial manner – there is absolutely no need to rush – as Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S………..The process has begun to place additional Tariffs at 25% on the remaining 325 Billion Dollars. The U.S. only sells China approximately 100 Billion Dollars of goods & products, a very big imbalance. With the over 100 Billion Dollars in Tariffs that we take in, we will buy………agricultural products from our Great Farmers, in larger amounts than China ever did, and ship it to poor & starving countries in the form of humanitarian assistance. In the meantime we will continue to negotiate with China in the hopes that they do not again try to redo deal! Tariffs will bring in FAR MORE wealth to our country than even a phenomenal deal of the traditional kind. Also, much easier & quicker to do. Our Farmers will do better, faster, and starving nations can now be helped. Waivers on some products will be granted, or go to new source! ….If we bought 15 Billion Dollars of Agriculture from our Farmers, far more than China buys now, we would have more than 85 Billion Dollars left over for new Infrastructure, Healthcare, or anything else. China would greatly slow down, and we would automatically speed up! We have lost 500 Billion Dollars a year, for many years, on Crazy Trade with China. NO MORE!
As ever, the English language is not a sufficient tool to communicate how absolutely absurd that is.
Trump continues to perpetuate a highly misleading narrative about “massive payments go[ing] directly to the Treasury of the U.S.” What he doesn’t mention is that China is a massive US creditor. America borrows from China, which means that, in essence, any measures the government takes to ameliorate the effects of the tariffs on Americans (e.g., farmers) are being paid for with borrowed money from Beijing.
Read the history of Trump’s farmer bailouts
But Trump took things to a whole new level on Friday.
Apparently, he is now trying to convince the public that what he will do is use 15% of what he clearly thinks is free tariff money and use it to buy agricultural goods from US farmers, which he will then ship to “starving nations”. That, despite the fact that Trump has, at various intervals, called a bevy of poor nations “sh*tholes“, banned immigration from countries suffering from humanitarian crises of one kind or another and, most recently, cut off aid to three Central American countries on the excuse that they are involved in a conspiracy to “invade” Texas (the House is currently trying to rescue that aid, by the way).
And it didn’t stop there. The balance of that tariff money, Trump claims, will go towards rebuilding America’s infrastructure – “or anything else.”
Of course, what would make a whole lot more sense, would be to just drop this exceedingly Quixotic tariff crusade and issue some ultra-long-term bonds. Because then, China would start buying US farm products again, and, having been spared the trade war, Beijing would also be happy to buy the debt, the proceeds from which Trump could plow into an infrastructure program.
This is all manifestly insane and underscoring the sheer, blatant stupidity of it all is the fact that some of Trump’s 11-tweet harangue were duplicates. Realizing that, the president went back and deleted the entire string, only to start tweeting it back out again in truncated form. He added the following:
Tariffs will make our Country MUCH STRONGER, not weaker. Just sit back and watch! In the meantime, China should not renegotiate deals with the U.S. at the last minute. This is not the Obama Administration, or the Administration of Sleepy Joe, who let China get away with “murder!”