Tariffs and the Tax Cut

Wall Street Journal ^ | June 12, 2018

[reaganaut1]

More than a few conservative intellectuals have warmed to Donald Trump’s trade protectionism because it supposedly helps blue-collar Americans. But what if his tariffs do the opposite?

Erica York at the Tax Foundation crunched some numbers recently showing that Mr. Trump’s proposal for a 25% tariff on imported cars, trucks and parts could eliminate half of the income gains from tax reform for millions of Americans. Those in the lowest income quintile could lose 49% of their tax gains. Say for ease of calculation that these folks received a $100 after-tax bonus from changes like the doubled standard deduction. After auto tariffs that would be whittled down to $51, Ms. York notes.

The tariffs shave gains in all income brackets, but no one is hurt more than the poor and middle class. Take the fourth income quintile, or a household making at most about $70,000 a year in adjusted gross income. The Tax Foundation says auto tariffs could erase nearly 30% of that family’s after-tax income bump. Ditto for the third quintile, or a family earning no more than $43,000 a year.

[reaganaut1]

The Tax Foundation study is Automobile Tariffs Would Offset Half the TCJA Gains for Low-income Households.

[anton]

Propaganda from the WSJ. Tariffs depress imports by raising prices on selected imported goods. There is nothing that is not substituted.

If Canadian cheese goes from $12 to $14 the consumer will buy the Wisconsin cheese which is already at $13. The price elasticity of cars has a slower, but equally determinable cycle. It just takes a while. The cheese happens the week after tariff imposition.

[wbarmy]

These tariffs only stay in effect as long as the recipient countries keep their tariffs and taxes on American goods.

I doubt very seriously if the recipient countries will keep their tariffs while this is going on. They will reduce, our tariffs will reduce, trade will ensue, bigly.

[Bryanw92]

>>Those in the lowest income quintile could lose 49% of their tax gains. Say for ease of calculation that these folks received a $100 after-tax bonus from changes like the doubled standard deduction. After auto tariffs that would be whittled down to $51, Ms. York notes.

Those in the lowest quintile don’t buy high end BMWs. If they do buy new, it is a Kia, Hyundai, Toyota, etc which are all made in the USA.

[Raycpa]

The genius of Trump’s timing was the tax deal gave him the leverage to enter trade wars.

[trebb]

Yep - not to mention any “inconveniences” will be short term and long term results will favor us.

[Alberta's Child]

It's a legitimate question because it goes right to the heart of the economic trade-offs with a protectionist system in place.

Do we want to have a high standard of living, or do we want to have few unemployed people? It's nearly impossible to accomplish both, since a country with the highest standard of living in the world will have a hard time being competitive in a global economy unless it: (1) relies on cheap imports to prop up its living standards; and/or (2) maintains robust domestic industries through heavily automated production processes that don't require a lot of workers.

[central_va]

Prices of imported goods will always be higher post tariff. That is the point of them; to make the domestic competing good more attractive.. At first prices will be much higher then lower later on as new domestic supplies kick in. The higher cost will be the difference in US labor/regs minus cheaper shipping costs. I'd estimate 5-7% higher. But quality will go up too especially for the junk we import from China. Yes, the one time inflation is worth it to me and a lot of other patriots. In addition the positive secondary effect on GDP of factory repatriation is enormous and never discussed for some reason.

What Free Traitors at the noWall Street Urinal want you to believe is that the supply function is static and no new domestic suppliers will EVER come on line. Despite their best efforts brand new factories are still being built in the USA all the time. Not as many as are closed mind you but the situation is dynamic and not static. To repeat myself with more domestic supply the pressure will be to reduce prices.

[central_va]

Tariffs INCREASE revenues reducing the budget deficit dramatically. Deficit hawks should be cheering.

[Alberta's Child]

If they do buy new, it is a Kia, Hyundai, Toyota, etc which are all made in the USA.

Exactly. IF they do buy new ...

I suspect very few people in the lowest quintile buy new cars, and if they do they probably end up having them repossessed disproportionately. The average car on the road in the U.S. today is something like 12-13 years old, and the lowest quintile probably ends up as the second, third or even fourth owners of these cars.

[onona]

Agreed. The negativity in the media is astounding

[clee1]

But what if.....

WHAT IF??????

WaPo asks a hypothetical question and describes the doom n gloom that results????

I’m SICK of the leftist media.

CW2 looms....

[Sir_Humphrey]

Not just the media. Even Trump's own advisers don't buy into the protectionist claptrap:

http://thehill.com/homenews/administration/391278-internal-white-house-study-found-trump-tariffs-will-hurt-us-economic

[ClearCase_guy]

It’s a shame that the WSJ doesn’t understand economics.

[jdsteel]

Every action has reactions, both known and unknown, positive and negative. That is not a reason to just accept the status quo. The Trump Tariffs very likely will be temporary. As to them eating up 40% of the gains from the new tax law at least the WSJ is admitting there were benefits to the tax law. IF that really is accurate people are still 60% ahead from last year.

[palmer]

The administration has thus far:

• Forced Japan to accept restraints on auto exports;
• Tightened considerably the quotas on imported sugar;
• Negotiated to increase the restrictiveness of the Multi­fiber Arrangement governing trade in textiles and apparel;
• Required 18 countries, including Brazil, Spain, South Korea, Japan, Mexico, South Africa, Finland, Australia, and the European Community, to accept "voluntary re­straint agreements" that reduce their steel imports to the United States;
• Imposed a 45% duty on Japanese motorcycles for the ben­efit of Harley Davidson, which admitted that superior Japanese management was the cause of its problems;
• Raised tariffs on Canadian lumber and cedar shingles;
• Forced the Japanese into an agreement to control the price of computer memory chips;
• Removed third-world countries on several occasions from the duty-free import program for developing nations;
• Pressed Japan to force its automakers to buy more Ameri­can-made parts;
• Demanded that Taiwan, West Germany, Japan, and Switzerland restrain their exports of machine tools;
• Accused the Japanese of dumping roller bearings on grounds so that the price did not rise to cover a fall in the value of the yen;
• Accused the Japanese of dumping forklift trucks and color picture tubes;
• Extended quotas on imported clothes pins;
• Failed to ask Congress to end the ban on the export of Alaskan oil and timber cut from federal lands;
• Redefined dumping so domestic firms can more easily charge foreign competitors with unfair trade practices;
• Beefed-up the Export-Import Bank, an institution dedicated to distorting the American economy at the ex­pense of the American people in order to artificially pro­mote exports of eight large corporations.

https://mises.org/library/ronald-reagan-protectionist (1988)

[DoodleDawg]

Trade wars are like any other war. There are costs. There are casualties. There are hardships to be borne by some segments of the market. The expectation is that the longer term benefits of winning outweigh the shorter term cost of the war. And the hope that winning doesn’t cripple you in the process.

[DoodleDawg]

It’s a shame that the WSJ doesn’t understand economics.

I saw nothing inherently wrong in what they said. Tariffs do raise costs, at least in the short run. Lower incomes will be hit disproportionately to higher incomes.

[babble-on]

the only thing that will give the administration pause is if the market crashes and people know it was because of tariffs.

[lurk]

Trump’s actions on tariffs have the effect of stimulating manufacturing in the US.

People have no idea how close to extinction the steel and forging industry has gotten. It is a national security threat.