Ah, the Tariff Sheriff

Illustration by Kevin Kal Kallagher, Baltimore Sun

The Trump regime tariffs – they’re 25% on China, no they’re not, they’re 25% on China, Mexico and Canada, no they’re not, they’re 25% on all aluminum and steel imports from everywhere on earth, they’ll stimulate domestic production, no they won’t, they’re reciprocal tariffs, meaning that whatever another nation’s tariffs are on imports from U.S.-based companies, U.S. Trump will impose the same tariffs on the other guy.

That last would require individual tariff rates on thousands of products from more than 150 countries.

And that chore might require some more employees, in fact, but more employees is a prospect inconsistent with the Trump credo.

The President has called “tariffs” the most beautiful word and has insisted that tariffs will raise revenues, enough to pay for the extension of his 2017 tax cut, in addition to other promised tax cuts.

Alas.

Tariffs can only increase costs to U.S. residents. That’s the way the machine works. If Jane Doe, U.S. business woman, must pay more starting in March than she had to pay in November for Canadian widgets, and she contracted for those widgets at the November price, she is going to take a bath on the widget delivery. And she is going to have to pass those costs on to her customers, if she can, but she probably contracted with them in November for the delivery of the widgets at the November price. So Doe must eat the cost of the tariff, or somehow find a way to pass it on to her customers. Any way you look at it, the tariff will cost Usians more than before.

This is Trump shooting himself in the foot by shooting us all in the bank account. It’s akin to the Dr. Seuss Green Eggs and Ham lyric, or perhaps more appropriately for taxpayers, the Sara Silverman-Matt Damon song.

“Prices could go up somewhat short term, but prices will also go down,” Trump said on February 13. “So Americans should prepare for some short-term pain.”

We could ask for a definition of short-term pain, but we would not expect a useful answer.

Let’s instead walk through a tariff collection, beginning with definitions.

A tariff is a tax levied by governments on the value, including freight and insurance, of imported products. Different tariffs have been and could be applied on different products by different countries.

National sales and local taxes, and in some instances customs fees, are often charged in addition to the tariff.

The tariff, along with the other assessments, is collected at the time of customs clearance at the port of entry. Tariffs and taxes increase the cost of a product to the buyer and will affect the buyer’s product’s competitiveness in the market.

Going forward, Jane Doe’s knowing the final cost that she will pay can help her price her product. In parallel, if you are a foreign exporter of a product, you can ask Jane for an estimate of her new cost before contracting to sell stateside. After all, there are other markets on planet Earth, and the Trump tariff regime may not be worth the trouble, regardless of the size of the U.S. market. It’s all in the marginal cost of doing business.

If you’re Ms. Doe, a U.S. buyer, it will probably behoove you to provide that estimate. See, however, the earlier sentence regarding reciprocal tariffs, “That last would require individual tariff rates on thousands of products from more than 150 countries.”

So: importers who pay the tariffs pass the costs on to retailers, if they can, which raises prices for consumers. That observed fact has left some Trump proponents shocked. Shocked, I tell you, including the Wall Street Journal editorial board, which asked: “Does President Trump understand money?”

The WSJ editorial board answered its rhetorical question with “The answer would appear to be no after Mr. Trump called for lower interest rates on Wednesday—the same day the Labor Department reported an increase in inflation for the third straight month. “

This WSJ query is a response to Trump’s comments on his Truth Social platform, proposing that cutting interest rates would go “hand in hand with upcoming tariffs.”

But this dream has not played out in reality. Interest rates have risen, and the Federal Reserve Board chairman Jerome Powell has made it clear that he has no plans to cut interest rates in the foreseeable future.

So let’s imagine that Ms. Doe has been able to find a sweet spot, in which she can keep her customers happy and still make bank at the end of the quarter. That’s probably a rare outcome, but fine. Who will not do well, no matter what, are government contractors.

U.S. government contractors will have to take the loss from those tariffs with no recourse, according to

Morrison and Foerster. This is because their contracts with the federal government are locked in as to price, cost, and length of contract.

The cascading results – the secondary and tertiary consequences of the Trump regime tariffs – domino down the line. According to the Council on Foreign Relations, “Higher steel and aluminum costs would hit construction, auto, packaging, appliances, machinery, oil and gas, and electrical industries the hardest. Aluminum makes up around 80 percent of an airframe’s weight and—along with steel—a quarter of Coca-Cola packaging, meaning tariffs could make American planes and drinks pricier on the global market. Building a car, similarly, takes about half a ton of steel, so a 25 percent tariff could add over $1,000 in production costs per vehicle.”

Trump has gone after China’s dominance on global markets to justify the tariffs, but they won’t have much impact on China, which produces more than half of the world’s steel but exports relatively little to the United States.

So what will come of the falling dominoes?

If we look only at tariffs, some nations will ask for exemptions, others will up the ante with reciprocal tariffs. But within the context of Trump’s foreign policy positions on Israel, Gaza, Ukraine, NATO, the EU, Greenland, the Panama Canal, and the Gulf of Mexico, and paying close attention to his throw-away remarks prior to Superbowl, the greater threat Trump poses to the world’s finances is his musing that maybe the United States should just default on some of our debts.

“We’re even looking at Treasuries,” the president told reporters on the Superbowl flight. “There could be a problem … It could be that a lot of those things don’t count. In other words, that some of that stuff that we’re finding is very fraudulent, therefore maybe we have less debt than we thought.”

Sure, why not walk away from some of America’s debts? Full faith and trust of the United States and the Constitution, impediments.

I deeply wish that someone would take the matches away from the baby sitting in the gasoline pool.