Are Trump’s Tariff Costs Insignificant?

  • Comments on Peter Navarro’s Arguments That the Tariffs are Insignificant

Update:  8/23  Later that day.  Trump, the Casino owner, has seen the Chinese call, and raised it yet again.  By Midnight, we might be at DEFCON 4.  Trump will raise the duties on the first $250 billion from 25% to 30% on Oct. 1.  On the new $300 billion left of the trade, he will up the 10% to 15%.  Supposedly the stores have already stocked up for Christmas, before Trump can do his bah-humbug act.  He did this after the market closed with indices already falling 2-3%.  Just to be clear, this column is 100% produced within the USA.  Maybe that’s not correct.  I use an iPad, an iPhone, a Google Home Assistant, and a Samsung TV to gather information.

Update:  8/23  China retaliated to Trump’s tariffs with 5% to 10% tariffs on another $75 billion of US imports, to be applied both on Sept. 1, and Dec. 15.   Trump, of course, had to immediately retaliate by ordering all US companies to seek supply sources outside of China.  Does Trump actually own all US companies to boss them around like that?  Wouldn’t that be Communism?   China imports $120 billion from the US, so there will now be tariffs on $60 billion plus $75 billion for a total of $135 billion of US imports to China.  In 2015, US imports to China employed 911,000 Americans, with 601,000 employed in goods export, and 309,000 employed in  service exports.

Update:  8/19/19 JP Morgan has come up with estimates close to mine.  They say that the present tariffs will cost the average household $600 per year, close to my $573.  But they say the 10% tariffs on the next $300 billion will result in $400 per year, while I came up with $276 per household.  However, JPM-PC has a market capitalization of $367 billion, so they can do a better job.

I am not an economist, and in this case, it really is a handicap.  Yet I saw Dr. Navarro on two channels in sequence this morning making an argument with numbers, which, of course, drew me in.  He is arguing that the upcoming Trump tariff, now delayed until just before Christmas, is irrelevant cost-wise, EVEN THOUGH IT IS NOT COSTING US ANYTHING.  This seems to be a serious logical flaw in convincing anyone, except maybe Trump.

So here his calculation goes.  US consumer spending is $14 trillion a year.  The new and yet to be imposed tariff is 10% on the last $300 billion of Chinese imports.  So that comes down to “only” $30 billion a year.  This is 0.214% or 1/5 of 1% of consumer spending, so it is insignificant.  (The GDP of China in 2017 was $12.24 trillion, so why would it be significant to them, either?)  But, Navarro forgot to divide the $30 billion by the US population of 327 million, which comes out to $92 per person.  Since the average household has three people in it, it comes out to $276 per household.  Something like 40% of US adults would have trouble absorbing an extra $400 bill, so this is very significant to them.

As of August 16, the Wall Street Journal says that Trump will impose $111 billion on Sept. 1, and $156 billion will be delayed until Dec. 15.

The US Secretary of the Treasury is Steven Mnuchin.  He is worth $300 million.  Wilbur Ross is the Secretary of Commerce, and worth $600 million.  The highest White House salaries of $183,000 includes Navarro, who is Director of Trade and Manufacturing Policy.  “He is typically considered an heterodox economist”, my Google Home Assistant volunteered.

But Wait!  Trump has hinted that the 10% is only a start.  The first $250 billion of Chinese trade already has a 25% tariff on it.  That is a cost of $62.5 billion that importers must pay, and then perhaps pass on.  That is a cost of $191 per person, or $573 per household.  If Trump eventually ups the tariffs on the new $300 billion to 25%, the cost will be $75 billion a year, which is $229 per person, or $688 per household.  Adding these numbers to those from the present tariffs on $250 billion would give $191+$229 = $420 per person, or $1,260 per household.  Again, 40% of adults could not afford a $400 unexpected expense.  Not insignificant to any of us!

But, Wait, There’s More!  So far, China has imposed counter-tariffs on $60 billion of US goods.  That has decimated the soybean market.  Relying just on memory, the US government has to give $28 billion in extra support to farmers to counter this, which comes out of the tax dollars on all of us, although this is not a yearly amount.

The experts say that the Chinese government might just be waiting Trump out until January 20th, 2021, when he might be replaced by a Democrat who returns to free trade.  My own guess, is that Trump planned to fold well before the election, especially since he is significantly behind everybody in all polls, and declare the result another Great Victory, er, sorry, The Greatest Victory Ever.

Navarro’s previous argument to it not costing us anything is that the Chinese have had to devalue their currency, by now 12%, so that would counter the 10% tariff on the new $300 billion.  Again, I’m not an economist, but somebody is paying for that somewhere.  Since China’s money would buy 12% less of American products, or our prices would look 12% higher, that would also slow American imports to China.  It could be why Chinese investment in US real estate has dropped off dramatically, and perhaps in US companies.  It would also lower the number of Chinese students coming to US universities, which help us fund the Universities with large out-of-state tuitions.

Navarro also argues that China has just shifted its manufacturing to other Southeast Asia countries, like Vietnam.  But, it is also true that China has now shifted its valuable soybean imports to other countries as well, and that shift could be permanent.

Lots of loose ends to evaluate, but Not Insignificant!

About Dennis SILVERMAN

I am a retired Professor of Physics and Astronomy at U C Irvine. For a decade I have been active in learning about energy and the environment, and in lecturing and attending classes at the Osher Lifelong Learning Institute (OLLI) at UC Irvine.
This entry was posted in 2020 Election, 2020 Primaries, Affairs of State, Donald Trump, Economies, Free Trade, Trump Administration, University Funding, US Steel Imports. Bookmark the permalink.

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