CNN reports that President Trump’s aides persuaded him to delay the imposition of the latest round of protective tariffs, previously scheduled for September, until December 15, 2019. How? They claimed new tariffs would “ruin Christmas.”
Peter Navarro, Trump’s director of trade and manufacturing policy, defended the move saying that this was Trump’s, “Christmas present to the nation.”
Nothing could be further from the truth.
Not only would tariffs not perceptibly increase the price of toys, this schizophrenic shift in policy empowers the president’s political adversaries and enriches greedy multinational corporations and China.
My Kingdom for a (Toy) Horse!
It is fairly obvious to anyone who has worked in retail—or who shops at big box stores—that Christmas inventory arrives months before Christmas, and thus ships from China even earlier. CFC, a China-based shipping agent, notes that China’s peak export season is from July to September. Naturally, that’s when products typically ship to America for Christmas.
As such, President Trump’s September tariffs would have had little to no impact on shoppers this Christmas—assuming that greedy toymakers didn’t jack up the price of toys and use tariffs as an excuse!
And of course, we’ve been here before: every time President Trump raises tariffs, the media says American consumers will get burned. This hasn’t happened yet and it won’t happen now. This should be obvious to anyone who paid attention to the great washing machine debacle of 2018.
In January of 2018 Trump raised effective tariff rates on imported washing machines to 40 percent. He also imposed tariffs on imported steel and aluminum. The media went nuts—this perfect storm of taxes would make washing machines too costly for ordinary Americans, who would be damned to wander the streets covered in spaghetti stains and sweat spots!
This was nothing but bluster.
According to the Consumer Price Index (“CPI”) the cost of laundry equipment increased by 6.8 percent in 2018. Meanwhile, inflation was 2.44 percent. In 2019, the cost of laundry equipment decreased by 0.48 percent, compared to an expected inflation rate of 2 percent—this modest increase is nowhere near the 40 percent increase that the media anticipated.
Frankly, we don’t even know if tariffs caused this price increase. Remember that in 2012 prices increased by 8.56 percent in the absence of tariffs. This price vacillation simply could be an example of a random walk being ascribed meaning by economists who are wont to see faces in the clouds, who seek meaning in banality.
Trump’s tariffs haven’t noticeably increased the cost of goods yet, so why assume this time will be any different?
The Brave Little Toaster
Evidence aside, there is a very simple and logical reason why Trump’s tariffs haven’t raised consumer prices: tariffs aren’t levied on a product’s retail price, wholesale price, nor even the import price. Instead, they’re levied on the first sale price—the price paid to foreign vendors by American companies or their agents.
Calculating the tax burden in this way disproportionately hurts foreign suppliers and mitigates the cost to Americans. For example, pretend Trump imposes a 10 percent tariff on Chinese toasters and that Black & Decker makes toasters in China. The American retail price of said toasters is $60. Tariffs are not imposed at this point—$66 toasters are a media-concocted boogeyman.
American retailers buy from China. Because of China’s intentionally convoluted regulatory framework, however, they usually purchase through middlemen in Hong Kong, Singapore, or Taiwan. These middlemen charge Americans $14 per toaster.
Finally, we come to the end of our journey: the middlemen pay China just $7 per toaster. This is the first sale price upon which tariffs are calculated. As such, a 10 percent tariff on a $60 toaster works out to just 70 cents, or 1.15 percent.
In fact, consumers may not see any price increase whatsoever because suppliers may simply buy toasters from Taiwan or elsewhere. And of course, consumers are free to buy American toasters and pay no extra tax—it’s a shame we cannot do that for income tax!
Trump’s September tariffs would not have ruined Christmas, and yet that’s what his aids told him. Why would they lie?
Open Theft Left Unanswered
In answering this question the obvious first step is to ask: who benefits by delaying or eliminating tariffs?
First, the president’s political adversaries. This includes not just Democrats but also the liberal and libertarian factions of the GOP—otherwise known as the “free trade brigade.”
Navarro says delaying tariffs is a “Christmas present to the nation.” The implication here is that Trump’s tariffs would have harmed American consumers, and that Trump is doing us a favor by delaying them.
This is a mind-blowingly stupid rhetorical gaffe and intellectual concession from an allegedly pro-tariff administration. If tariffs would ruin Christmas then they must be bad. If tariffs are bad then why would Trump impose them? Unless—wait for it—Orange Man really is Bad!
This is pure fuel for the president’s adversaries, who I expect to jump all over this as an excuse to remind Americans that importing junk from China is the highest virtue.
If, on the other hand, President Trump really believes that tariffs are good for America—and I believe he is sincere on this issue—then why delay? We want to make America great again now, not four months from now. Carpe diem.
Second, multinational corporations and banks obviously benefit. The China trade has been incredibly lucrative for big business because it allowed them to slash their labor costs into teeny-tiny pieces while still selling their products in America for basically the same price—cheap Chinese goods is a myth told to wide-eyed libertarians. Nothing more.
Meanwhile, America lost millions of jobs to China. And as if this wasn’t bad enough, all those unemployed people began competing for work with everyone else, further driving-down wages. In order to survive, our dispossessed brethren remortgaged their houses and applied for new credit cards—they even elected socialist governments to tide them over with welfare which was paid using borrowed money.
In the end, the China trade has only served to impoverish the American public and enrich fat cat corporations and greedy bankers who loan us the rope (at interest) with which to hang ourselves.
Third, China benefits. This is so obvious, a blind man could see it.
China has purchased or stolen 200 years’ worth of Western technology from U.S. corporations that set up shop in China. As it turns out, exporting the production of advanced technologies to foreign countries and teaching foreigners how to replicate said technology is a great way to lose technological secrets.
And of course, espionage conducted by Chinese companies (de facto arms of the Chinese Communist Party and government) costs America immense profits, some $600 billion every year.
On top of this, the influx of American dollars into China has allowed China to spend said dollars abroad. We are financing China’s military ascendency and their colonial adventures in East Asia and Africa—we give them dollars and they buy influence. This is highly counterproductive from a foreign policy perspective.
By delaying the next round of tariffs, President Trump’s aides are not putting America first. Instead, they are giving a splendidly wrapped present to Trump’s political opposition, to the international bankers, and to China.
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