Cnn
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President Donald Trump says he believes tariffs are a medicine: a captured economic tool that can restore America’s production capability, bring foreign nations to the heel for major disputes, restore trade balance and bring money that can help pay US deficits and reduce Americans’ tax burdens.
Trump is accurate that tariffs can help meet too much if not all those promises: when used effectively, tariffs can help increase home production by making foreign goods more expensive. Because America is a large and diverse economy that does not rely on trade as much as its neighbors, the United States can use tariffs to cause serious damage to other countries’ economies without being immersed in a recession. Revenue collected from tariffs can help compensate some of its deficits.
But as the saying goes, if it sounds great to be true, it is usually.
The problem with Trump’s plan is that tariffs cannot reach all these goals at the same time. That’s because Trump’s goals are often contradictory.
For example, if tariffs are a pressure campaign, they need to leave after countries accept – meaning there will be no fees to reset the trade balance. If tariffs are created to promote the US production sector, they also cannot collect income to compensate deficits-if Americans switch to goods made in the US, then who pays the fee for foreign products?
And Trump’s tariff plan can do more to damage the American economy than to help it. Trump has recently admitted that tariffs will cause a “concern”. And the shares were plunged on Monday after Trump refused to predict that America would avoid a recession as a result of its trade policies.
But Trump seems to be a true believer in fees. He often appreciates former President William McKinley, who over 100 years ago set huge fees for foreign nations before America had a tax on income. Trump has often said the fee is “a beautiful word” that will make Americans rich again.
Despite frequent delays and withdrawals, Trump seems determined to impose large fees on foreign products starting April 2-for a variety of reasons.
Fentanili and immigration
Trump has said the 20% tariffs he set for China and 25% the fees he has set – and mostly late – in Mexico and Canada were created to pressure those countries to stop Fentanil’s flow and illegal immigration to the United States.
Trade Secretary Howard Lutnick has repeatedly said delayed tariffs, now planned to come into force on April 2, will stay in place until Trump believes countries have made significant advances in the inhibition of Fentanil’s entry.
“If Fentanil ends, I think these will come out,” Lutnick said Sunday in “Tap Press” of NBC. “But if Fentanil does not end or he is unsure of this, they will stay that way until he is comfortable. That’s black and white. You have to save American life.”
Trump’s tariffs in Mexico and Canada are part of “a drug war, not a trade war”, the director of the National Economic Council Kevin Hassett echoed ABC News this week on Sunday.
Meanwhile, Trump has made astronomical estimates of how much money fees can increase.
“We’ll get trillions and trillions of dollars and create work as we’ve never seen before,” Trump said during his joint speech at Congress last week. “Tariffs are about making America rich again and to make America again brilliant.”
“We’ll become so rich, you will not know where to spend all that money,” Trump told the Air Force one Sunday.
The Federal Responsible Budget Committee estimates that Trump’s tariffs in China, Mexico and Canada would bring about $ 120 billion a year and 1.3 trillion dollars over 10 years.
But here is the problem: they are not created to stay in place so long. If the Trump administration says they will “come out” if Fentanil’s problem is resolved, we should hope that they will not be in place for a decade.
In fact, Hassett said Progress in Fentanyl is why Trump has twice delayed tariffs in Canada and Mexico: “As we have seen them make progress in the warfare, then we have relaxed some of the fees we put on because they are making progress,” Hassett said.
“I’m telling you, you just look. We will have work. We will have open factories. It will be great, ”Trump said in Air Force One on Sunday.
To do this, Trump has often defended the lowest taxes at home and higher taxes on goods made abroad.
During his common speech to the Congress Trump noted one of his main points of sale for tariffs: “We want to cut taxes on domestic production and all production,” he said. “If you do not make your product in America, however, under the administration of Trump, you will pay a fee and, in some cases, a big enough thing.”
It is a carrot and contagious approach to the trade policy that Trump says it will restore the US production sector.
“This, along with our other policies, will allow our vehicle industry to bloom absolutely. It will bloom,” Trump said last week.
While Trump routinely remembers companies: If you make products in America, you do not pay fees. But if companies do as Trump asks, then America cannot increase their income.
Paying debt and tax cuts
Among Trump’s first actions as president at the beginning of his second term was to order the Treasury Department to determine whether he could create a “external income service” to collect tariff income to pay the debt of America and reduce taxes.
“Donald Trump announced the external income service and its purpose is very simple: to abolish the internal income service and let all foreigners pay,” Lutnick told Fox News in late February.
In other words: America will raise so much money from President Donald Trump’s tariff plan that Americans will no longer need to pay income taxes.
The problem is that America increases about $ 3 trillion each year from income taxes and also happens to import goods worth about $ 3 trillion a year. So this means that tariffs will have to be at least 100% for all imported goods for fees to replace revenue taxes – an unreasonable level that can cause a price shock to US consumers.
This will almost certainly not happen. But higher prices can reduce consumer costs, damage to the economy – and manufacturer’s tariffs are trying to save.
“We have been giving up for decades from almost every place on Earth, and we will not allow this to happen anymore,” Trump said last week during his address. “Other countries have used tariffs against us for decades, and now it is our turn to start using them against those other countries.”
Trump has promised reciprocal tariffs for a number of products starting on April 2, matching the dollar of foreign dollar tariffs to restore trade justice. When America is charged with a higher fee and has a trade imbalance with other countries, Trump has often mistakenly labeled a “subsidy” or “loss”.
“They are, in fact, receiving subsidies of hundreds of billions of dollars,” Trump said during his address. “The United States will not do so anymore.”
Economists mainly agree that trade deficit are not losses or subsidies. In fact, they can be a reflection of a strong economy.
Tariffs are not likely to significantly narrow America’s trade gap with other countries. If it were to happen, it could be a signal that America’s spending power was decreasing.