Trumps Tariff & Trade War…Will it Fail?

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I really appreciate Trump attacking the trade imbalance with other countries. As I have said before…I am tired of the United States being one big sugar daddy to the rest of the world. US welfare payments to foreign countries have to stop…it’s only fair.

Like reciprocal tariffs…they’re only fair. You tax US goods being imported into your country…it’s only fair that we tax your goods coming into our country.

And Trump has devised a masterful plan on how to ease the “short-term pain” that consumers will feel due to those taxes on incoming foreign goods. There are two aspects to that plan; 1) decrease in federal government regulations, 2) income tax reduction plan. Both are macro-economic strategies; and in theory they will work just fine. But, they won’t…here’s why…

Depending on who you want to believe the financial impact on the average US household will be between $2,000 – $8,000 per year. For this article’s sake let’s just take the average to be safe and fair, $5000 per year in tax (tariffs on imported goods). Oh yeah, while the importing US business may pay the tariff (tax) they will pass that tax (tariff) on to the American consumer…common sense.

So, this means each US family will pay about $415 per month out of pocket for the same spending pattern, the same goods that they would normally buy; things like food, cars, clothes, etc. On the macro-economic level that additional cost will be off-set by reduced costs in other ways.

First – Trump is reducing federal regulations on US companies; and those reductions in regulations will result in reduced costs to those US businesses…the savings of which will theoretically be passed on to consumers.

Second – Trump has proposed an income tax reduction/savings bill to Congress. If passed, the reduction in income taxes will also lower the average US household expense by some amount…as yet unknown.

There 130million US households; if each household is negatively impacted $5000 that comes to a total of $650billion ($650,000,000,000) economic impact out of US households each year. You say…”That is a whole lot of money that Americans can’t afford!” You are correct…moving 650 billion dollars from American family’ paychecks into the US federal government bank account would be devastating for families and push the US into a deep recession…probably a depression. But, hang on there a minute…

Remember…with Trump’s plan there is savings from US businesses lowering prices due to the savings from reduced government regulation. But, that only occurs if those companies actually reduce prices. Also, with Trump’s plan there is savings in reduced income tax bills. In Trump’s mind, on a macro-economic level, $650billon dollar increase in taxes (tariffs) on American families is offset by a combined reduction in price of goods and reduced income taxes of $650billion. Sweet! And that is the cushion to soften the “short-term” pain until all those manufacturing jobs come back to the US with those great paying jobs and make America economically sound again. Ah, hang on a minute…

Let’s talk reality for a minute…if you are a US business and you now are saving $100million a year due to a reduction in federal government regulations are you going to reduce your prices to consumer? Or, are you more likely to pay your top executive bonuses and/or pass that savings/money on to shareholders? And FWIW…passing on that added savings (i.e. profit) to shareholders is considered a fiduciary responsibility for many corporations.

Now let’s talk the reduction in income tax. There are 130,000,000 US households (+/-), of those US households, 40+% pay no income taxes…that’s 52,000,000 households paying no income tax. Why? Their taxable income falls below the minimum income level. Which oddly enough roughly corresponds with the percentage of lower-income / lower-class US population. Why is that important or even applicable to this situation? Ah, if you don’t pay any income taxes then a reduction in income tax rate doesn’t help you at all.

Trump’s plan on a macro-economic level is sound and should work just fine. But, in the real world it fails…and fails miserably! How? Let’s talk reality…

As I just mentioned almost ½ of US households will get ZERO benefit from Trump’s tax plan. But, they will be paying about $400 per month more to just pay their bills. Many of those families will not be able to absorb that…probably none. So what happens to them?

The reduction in federal regulations will only help certain companies in certain industries. What happens if a household doesn’t need to buy something made by that industry or that company? Well, then that household doesn’t benefit financially from that savings either. And that is IF all companies financially benefiting from reduced government regulations pass that savings on to consumers. Which history shows that is not likely.

So are there winners and losers to Trump’s tariff and tax plans? Yup, and let’s lay it out in real terms…not some fancy macro or micro-economic theories.

Let’s go back to the approximately $400 per month addition financial burden on each US household due to the increase in tariffs. For a rich household (upper-income / upper-class) $400 per month means absolutely nothing to them. They probably spend that much at Starbucks each month. There is no financial hardship for them whatsoever.

For middle-class / middle-income families it means something but is not a deal breaker. $400 represents half a car payment, 1/4th or 1/5th of a house payment, or maybe an electric bill. It might require a little reworking of their budget but no biggie once they set their mind to it.

For the lower-class / lower-income folks, especially those on fixed income (i.e. retirement, social security, etc.) it will be devastating! For a retired couple receiving social security, $400 more per month represents more than 10% of their monthly income!!

Think about this for a moment…low-income families of four make about $36,000 per year, that’s $3,000 per month. That $400 per month increase due to tariffs is an increase of more than 13% for that family!!!!

 

So let’s go through the facts:

  • US companies will not be directly hurt by an increase in tariffs, they will pass that cost on to US consumers.
  • The US federal government will collect an estimated $650billion of additional revenue from the increase in tariffs.
  • The rich folks class in the US will have no financial impact to their income, savings, or lifestyle.
  • The US middle-class will feel the impact but will be able to absorb the financial hit.
  • The lower-income / lower-class US families will be hardest hit…big time!
  • Retired and fixed income households will be hit extremely hard…big time!

Could this statement be true?

Is this, Trump tariffs, simply a transfer of wealth from US families to the US federal government?

On a “big picture” scale, macro-economic level, Trump’s plan for tariffs, taxes and deregulation sounds solid and completely workable. But, that is theoretical.

On the individual household level…will Trump’s plan work?

Granted, Trump’s plan includes bringing back American manufacturing jobs, and those jobs would be good-paying jobs. But, we know that at a minimum that takes 2 – 5 years to make any realistic positive financial/economic impact, 10 – 20 years to really transition the US to economical security and well-being.

Can the American economic system handle that?

Actually, will American’s tolerate that kind of pain in their pocketbooks and wallets?

I will give you this…foreign countries may negotiate with the US and reduce their tariffs on US goods, and in return we reduce our tariffs on their goods coming into our country. That would reduce the economic impact on the $400 per month figure.

The top 3 US trading partners are Mexico, Canada, and China…well over $2trillion dollars each year. So reducing tariffs with other countries means almost nothing if these three are included in that. And right now, we are in a bloodbath economic war with China. And we seem to be having a bit of a problem with the narco-country to the south and the socialist/authoritarian country to the north.

But let’s go back to the question I asked…what if the real plan is to transfer wealth from US families to the US government? When the results of the proposed plan, being currently implemented, is actually transferring thousands of dollars from US families is actually taking place…shouldn’t the question at least be asked? Could the Trump plan be a well-intentioned plan, but simply not possible?

The way I see things…it is the outcome of actions that is important, not the intention.

Remember, the easing of the “pain” and the success of this plan also includes government deregulation and a large tax reduction plan passed in Congress…that hasn’t happened yet.

Oh, and remember that this is all dependent on US companies passing on savings from government deregulation to US consumers…and when was the last time that happened?

When I look at all the facts, all the variables, some of the unknowns, all the questions, and all the numbers…my cynical little pea brain screams at me that this is one big FAIL!!!

And it certainly raises questions in my mind what is really going on. Jamie Dimon wrote a letter to his investors cautioning them about economic problems due to the Tariff Wars. Bill Ackman referred to the Tariff Wars as “self-induced, economic nuclear winter.” And even Elon Musk, one of Trump’s best buddies, has criticized the Tariffs Wars and the potential economic devastation that could result. Musk even appealed directly to Trump to not go to war with tariffs…and Trump turned him down.

And for me, here is the greatest “tell” or sign that the Trump plan will fail…every single market and economic indicator, since Trump was elected, is negative. Then add on what some pretty intelligent and successful folks are saying, then add in the common sense outcome factors of the Tariff War plan…well, it ain’t looking pretty.

Then again, I am probably wrong, commonsense doesn’t apply, the market and economic indicators are wrong, and folks who have a successful track records are wrong…and this Trump Tariff War will work just fine.

But what if it doesn’t?

What if this “plan” isn’t really the real “plan” at all?

Why the heck do I come up with these questions and write these articles? I am sure everything is just fine…no worries…nothing to see here, move along…all is well.

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