The Trump Tax

There is a lot of talk about how good the economy was under Donald Trump. I think that much of this talk benefits from rose-colored rear-view mirrors and is by people who don’t really remember what the Trump economy was like. People often tend to remember the past as better than it really was because we tend to blot out unpleasant details. Take the 1950s, for example. The decade is remembered as an idyllic, “Leave It To Beaver” era and not as one filled with racial strife, Red scares, and fear of nuclear immolation.

These days, I see a lot of posts on my social media timelines that talk about how cheap gas was during the Trump years. Specifically, a lot of these posts are a repeated meme that cites gas prices in March 2020. Does anyone remember what was happening in April 2020 that might have impacted gas prices aside from Donald Trump inhabiting the White House? If you said that COVID lockdowns kept everyone home and made the demand for gasoline plummet, you’d be correct.

It’s true that gas prices did spike when Putin invaded Ukraine and Biden was in office at the time, but correlation is not causation. Putin’s invasion drove the spike rather than Biden’s energy or foreign policies. At this point, US domestic oil production is higher than for any country in history, including Trump’s tenure, and gas prices are near historic averages. That isn’t bad considering there’s a MidEast war in full swing and Iran and Israel just traded blows.

While cheap gas is something that consumers like, quite often it is not a good economic indicator. This was the case in 2020 when oil prices went negative. In many cases, cheap gas often comes from economic conditions that cause the demand for oil and gas to decline. Pandemics can do this, but recessions are another frequent destroyer of demand.

And then there were the trade wars, something that Trump was much more responsible for than the pandemic. Trump’s unnecessary tariff wars, against allies in many cases, cost American consumers more than $230 billion and 245,000 jobs. The economic devastation left by Trump’s tariffs required massive bailouts to prevent farms from going bankrupt and led to a manufacturing recession in 2019 even before the onset of the pandemic recession. Trump campaigned on revitalizing American manufacturing but his policies destroyed export markets and American jobs, which ironically, may have also helped to keep gas prices low.

But that was more than four years ago. If the policies being touted by Team Trump for Trump II are put into place, the results are likely to be even worse than the halcyon days of farm bailouts and manufacturing job losses. Brace yourself for the Trump Tax.

What exactly is the Trump tax?

Is the Trump tax the five percent share that Team Trump is trying to skim from down-ballot candidates who use Trump’s name and likeness for their fundraising? No, but this is a real thing. I couldn’t make it up, but it reminds me of the “tax” that I charged my kids when I used to help them open candy or cookies. I’d take the first bite. They’d be lucky if I only took five percent.

Trump campaign co-chairs Chris LaCivita and Susie Wiles wrote to Republican vendors to “ask” that candidates and committees using The Former Guy’s name, image, or likeness pass along at least five percent of their fundraising receipts to Trump’s campaign. The letter further set out guidelines for candidates on how to avoid incorrectly implying that they speak for Trump.

Per The Hill, the letter concludes, “Any vendor whose clients ignore the guidelines mentioned above will be held responsible for their clients’ actions. Repeated violations will result in the suspension of business relationships between the vendor and Trump National Committee JFC. This includes list rental agreements.”

So pay up or get shut out. This won’t be good news for cash-strapped candidates in tight races, but Trump needs the money. Reuters reports that Trump is spending more than a quarter of donations received on his legal fees, even though Biden is ahead in the fundraising race. This is an inherent risk in nominating a candidate who is facing [counts on fingers] four criminal trials in the midst of the campaign.

Is the Trump Tax the plan by Trump advisors to devalue the dollar? After all, a devalued dollar is inflationary and inflation has been described as a silent tax.

The Trump plan to devalue the dollar is real, but it isn’t the tax that I was thinking of. It is, however, another good reason not to trust Trump on the economy.

Politico reports that Robert Lighthizer, the US Trade Representative during Trump I and a likely Treasury Secretary in Trump II, and his associates are actively looking for ways to weaken the strong dollar. Lighthizer, who was an architect of Trump’s disastrous trade wars, wants to use a weaker dollar as a way to narrow the trade deficit.

If the dollar is weaker, US exports are cheaper (if any countries are still interested in buying them due to tariff wars). Conversely, imports and products that use imported components would be more expensive for American consumers.

The trade deficit, by the way, is not an actual deficit. It does not mean that the US owes money to foreign trading partners. Instead, it means that the US imports more than it exports. That isn’t necessarily a bad thing, as Milton Friedman pointed out.. Another way of looking at this is that a trade deficit means the US is getting richer. We are taking in more than we are paying out.

The interesting thing is that the Trump Administration designated China as a currency manipulator in 2019. The reason that the former president took this extraordinary action was that China was accused of [wait for it] devaluing its currency.

Both of the examples that I have cited are bad ideas that Americans (even Republicans) should be concerned about, but they aren’t the real Trump Tax. Read on because the worst is yet to come.

The real Trump tax is a proposed actual tax of 10 percent on all imported goods. The idea has drawn widespread criticism from both sides of the aisle. The Tax Foundation estimated that Trump’s tax increase would cost American consumers and businesses $300 billion while the conservative American Action Forum said that the tax and associated reprisals from other countries would shrink the US GDP by 0.31 percent ($62 billion), impoverishing American workers by an estimated $123.3 billion. We’re talking a major Trump recession.

Just imagine anything imported from another country rising sharply by 10 percent overnight. I’m not talking solely about purely imported items like clothes and food but even American products that utilize foreign components. Life for American consumers would very suddenly get a lot more expensive.

How can Trump maintain popularity in an anti-tax party with a proposal to increase import taxes by 10 percent? I have learned that Republicans hate the word “tax” but love the word “tariff.” Most apparently don’t understand that a tariff is simply a fancy word for a tax on imports. Tariffs are taxes and all taxes are ultimately paid by the end user. In this case, that is American consumers. [Note to Democrats: If you want to get Republicans on board with your tax-the-rich schemes, just call it a “millionaire tariff.”]

Of course, some Trump supporters do understand that tariffs are taxes but see the tax hike as the price to be paid for strangling international trade and breaking America’s dependence on other countries. In their view, if America doesn’t make it, Americans don’t need it. This would also have the effect of impoverishing Americans who have come to rely on cheap foreign goods to boost their standards of living and drastically limiting the choices of goods available.

Michael Every, a global strategist at Rabobank, explained the hazards of Trump’s plan to CNBC, saying, “He’s talking about structurally breaking the global system by hook or by crook to basically reindustrialize the U.S. in a neo-Hamiltonian manner which is how the US originally industrialized, putting up a barrier between it and the rest of the world so it’s cheap to produce in America and more expensive to produce everywhere else if you’re importing into America.”

Put in simpler terms, Trump wants to wall off America from its trading partners with isolationist foreign policy in the form of a 10 percent tax on anything that comes from abroad. This would make anything that has imported components instantly more expensive and would trigger reprisals in the form of taxes on American exports.

And that is the flaw in Trump’s plan. Most countries respond to tariffs with retaliatory tariffs. Whatever benefit Trump gains on export pricing will be lost when countries that import our goods start taxing our products. American goods get more expensive and our trading partners shift their business to countries that don’t engage in trade wars. That’s exactly what happened in Trump I.

If Lighthizer is successful in devaluing the dollar and Trump implements his 10 percent tariff, American consumers will get hit with a double whammy. Consumer goods will get more expensive just as their dollars are worth less (though hopefully not worthless).

If Trump wants to boost American manufacturing, his plan is doomed to failure. On the other hand, if Trump’s real goal is to wreck global trade and plunge the world into a recession in order to implement his isolationist ideas, his policies stand a pretty good chance of succeeding.

If you like Trump for his economic policies, you might want to spend some time reexamining the policies of his first term and how they damaged the economy. In a sense, the pandemic may have preserved Trump’s reputation because it allowed him to blame the virus for the recession that his policies were about to cause anyway.

And when you’re done looking at recent history, listen closely at what Trump is proposing for his next four years. Look beyond the “Old Man Bad” rants to what Trump and his aides are actually proposing and think about the consequences of intentionally making your dollars worth less and adding 10 percent to the price of almost everything.