Deporting millions of undocumented immigrants and continuing tax cuts to the rich and famous is expensive. Donald Trump thinks that tariffs will help pay the bill.
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By now, just about everyone is, or should be, aware that tariffs function as a universal sales tax. Importers simply add the tariff they have to pay as a cost to everything you buy. So why is Donald Trump obsessively committing America to a strategy that’s all but certain to send inflation skyrocketing?
Trump claims that he wants to stop the influx of fentanyl, but the more likely answer is that he needs the money.
Trump’s two campaign policy objectives focused on deporting millions of undocumented immigrants and continuing the massive tax advantages to the rich that are due to sunset later this year. Billionaires like Elon Musk, Jeff Bezos, and Mark Zuckerberg may not need the money, but Trump needs them, and tax relief is the tastiest cake he can bake for them.
You don’t hear much about Trump’s pledge to deport millions of undocumented immigrants these days, but that’s because mass deportations cost money, and Trump needs Congress to vote him the funds necessary to finance the small army required to arrest millions of people — and that is not counting the hundreds of detention centers and the additional costs of feeding millions of incarcerated people and then transporting them somewhere else.
Trump’s Very Own Global ATM
Even though tariffs make no economic sense, they promise a rapid infusion of cash into the public coffers that Trump needs to finance his obsessions. What appeals to MAGA Republicans most of all is that converting the financial burden into a sales tax means that it will be evenly distributed to all consumers, which means that it will take a far bigger proportional bite out of the budgets of ordinary Americans purchasing essential goods than out of the hoards of the rich, who spend a tiny fraction of their wealth on such goods.
Without the tariffs, Trump’s tax breaks would send the US budget deficit soaring into the stratosphere. With the tariffs — not just on steel and aluminum, but on as many products as Trump thinks his “plan” will require — to the rescue, Trump can get America’s lower economic brackets, the poor, and anyone who just barely lives from payday to payday to shoulder a major share of the burden. It’s basically the robber barons’ answer to the century-old progressive income tax.
Will it work? It might if Trump had not already put so much pressure on other aspects of American society. Musk’s manic wrecking ball approach to the civil service not only removes the shock absorbers from America’s social fabric but also damages crucial economic sectors.
That said, playing Trump’s Sheriff of Nottingham, Musk is moving as fast as he can to erase the federal agencies responsible for tracking the essential data that lets us keep track of what is actually taking place in the US economy. What the public doesn’t know won’t hurt them — at least not right away.
It goes without saying that long-term damage to the US economy is unavoidable. Trump’s initial imposition of tariffs against steel and aluminum imports will primarily affect Canada, a once staunch ally that Trump’s casual vulgarity has managed to alienate for the foreseeable future.
Tons of Steel, a Case of Bourbon
The US produces roughly 70 percent of the steel it uses and imports a little more than 25 million metric tons of steel a year from foreign countries, of which Canada is the leading supplier, accounting for around 6.6 million tons annually. Trump claims that his real concern is China, which is currently responsible for more than half of the world’s steel output. Chinese dominance of the global market is the root cause of Trump’s anger. However, China’s exports to the US are pretty modest, only 508,000 tons a year.
The real problem is that China produces too much steel. As a result, a surplus of 551 million metric tons of steel — roughly the annual output from the European Union — is floating around on the world market. The excess amount of available steel reduces market prices to the point where US steel manufacturers can’t compete. The situation is further complicated by the fact that America was slow in modernizing its steel production technology. Scandinavian countries that rely on plasma-smelting have managed to stay in business by producing high-quality steel at affordable prices.
Trump’s tariff protection may make it possible for US steel production to continue even if it is less efficient and more costly than foreign producers, but taxpayers will ultimately end up subsidizing American inefficiency.
A study by the National Bureau of Economic Research noted that although most tariffs are usually passed on to consumers by importers, in some instances steel exporters have lowered their prices in order to gain market share, particularly in the US market. What makes Trump’s tariffs different this time around is that Canada has made it clear that it plans instead to respond to Trump’s current round of tariffs with reciprocal tariffs of its own — only this time, Canada intends to zero in on those states that vocally support Trump and his MAGA following.
For Florida, the Canadian reciprocal tariffs will target Florida oranges and orange juice. In Kentucky, bourbon is the likely target. Choosing Kentucky whiskey might sound frivolous, but total whiskey exports from Kentucky add up to $1.4 billion. Out of that, exports to Canada are worth $500 million. Most of that is bourbon. When Trump tried to do this during his first term, the cost to Kentucky in lost sales from Canada was $200 million.
And Canada is not the only country that’s likely to be affected. Trump has voiced animosity towards Western Europe. The European Union is already preparing a list of American companies to hit with its own reciprocal tariffs. As the tit for tat continues, Trump is not only reversing a half-century of American efforts to promote a global free-market economy, he also risks putting the brakes on economic growth everywhere.
It’s increasingly apparent that Trump doesn’t care. His audience is not the American public that will be trapped into paying the bill; it is the billionaires and corporations who financed him in order to avoid paying taxes, and if possible, to snare a few multimillion-dollar contracts.
Will the Crisis Turn Into Catastrophe?
The impending crisis raises a lot of questions:
Why is Musk so floridly giddy these days?
What other president would be dumb enough to give the unvetted minions of an avaricious defense contractor access to virtually all the Pentagon’s classified material?
Why do Republicans in Congress have nothing to say about relinquishing their authority to control the budget or handing unrestrained power to a president and vice president who have voiced open contempt for the rule of law, justice, and the US Constitution?
How did we get a vice president who suggests that the president doesn’t really need to obey the law and that, in any case, the law doesn’t really have to be respected if you happen to be president?
How did we end up with an administration that claims it wants to eliminate waste and then closes down the government agencies responsible for stopping corruption and eliminating waste, and then fires the inspectors responsible for seeing that the job gets done?
In the case of Congress, the answer may be that some of the timorous Republicans who have legitimate concerns about Trump are logically waiting for the courts to take this poisoned cup from their lips. As for Musk, Trump may figure that he can always cut the South African entrepreneur off at the knees if things get too far out of hand. That could be a dangerous miscalculation.
For the moment, however, Trump is the guy in charge and, consequently, the person to hold responsible if his erratic behavior triggers a national crisis.
That crisis might be just around the corner. Both Canada and the European Union are planning succeeding waves of tariffs, each designed to be increasingly painful. This from countries that used to be close allies and who we considered friends. As Trump’s Global Trade War picks up speed, the entire planet’s economy is likely to slow down until it drowns in a stagnant swamp of economic inactivity. All that, just so Trump can promote his Only-I-Can-Fix-It vision about what it takes to Make America Great Again.
