Trump’s Tariff Trap. Replacing income taxes with tariffs doesn’t pencil out.

City Journal ^ | June 20, 2024 | Alexander William Salter

[karpov]

Donald Trump rocked Washington last week with his proposal to fund the federal government solely from tariffs. Until roughly a century ago, tariffs composed the vast majority of national revenue, but today income and business taxes make up the lion’s share. Can Uncle Sam go back?

Taxing imports to pay Washington’s bills has a certain political appeal. Domestic taxes, often progressive in nature, are unpopular. Better to tax foreigners if we can.

The problem with this thinking, however, is that non-Americans largely don’t pay for tariffs in the end; U.S. households and businesses do, in the form of higher prices and reduced trade. The former president is relying on one of the oldest fallacies of “folk economics.” Supply and demand, not statutes or executive orders, determine who really pays a tax.

Yet, there’s an even bigger flaw in Trump’s plan. Government spending as a share of GDP is approximately 22 percent. Import spending as a share of GDP is 14 percent. To fully cover federal outlays, we would need to find a way to generate tariff revenue in excess of 150 percent of what we spend on all imports. Even if we wanted to cover current receipts only—remember, we run perpetual deficits—we would still have to squeeze an additional 100 percent of revenue out of current imports. There’s no way to make the numbers work.

The figures look even starker in dollar terms. In fiscal year 2024, the national government has taken in $3.29 trillion. Tariffs account for 1.5 percent of that, at $49 billion, meaning that we would need to scale up customs duties by a factor of nearly 70.

The commentariat has already recognized several of these difficulties. Even so, they understate the problem.

[Wuli]

“Your premise was that World Wars 1 and 2 brought around American industrialization but that is false.”

WWI and WWi were catalysts into the American supremacy that followed WWII.