Morning Wire - How Trump’s Tariffs Could Save the Middle Class | 10.5.24

Episode Date: October 5, 2024

Donald Trump’s economic plan aims to bring manufacturing back to the U.S. Economist E.J. Antoni explains the contrasting approaches of Donald Trump and Kamala Harris on tariffs, analyzing which strategy truly benefits and protects the American middle class. Get the facts first on Morning Wire. Birch Gold: Text "WIRE" to 989898 for your no-cost, no-obligation information kit. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Donald Trump has promised to impose huge tariffs on Chinese imports and American companies who move their production outside of the country, while Kamala Harris has declared tariffs a tax on the middle class. He has an agenda that includes tariffs to the point that the average working person will spend 20% more on everyday necessities. China is building massive car plants now in Mexico. We're not going to rip off the United States anymore. We're going to put big tariffs on those cars that are coming in here at 100 to 200 percent, and they're no longer going to be competitive. So you better stay in Michigan, and you better stay in the areas that you're in right now.

And what I really want you to do is come in and build your plants in this country and put our auto workers to work. We've lost about 60 percent of our auto working business over the years, and we're going to get it all back. Every one of them, we're going to get it all back. In this episode, we talk with an economist about the true impact of tariffs on the economy and inflation and which approach will best help Americans. I'm Daily Wire Editor-in-Chief John Bickley with Georgia Howe. It's October 5th, and this is a Saturday edition of Morning Wire. With the massive tax hikes proposed by Harris,

you might be thinking it's time to make more of your savings, tax-sheltered and inflation-sheltered. This is where I trust the good people at Birch Gold Group to help. Birch-Gold will assist you in converting your existing IRA or 401k into a gold IRA, a smart move to shelter your savings from both taxes and inflation. The best part, you don't pay a penny out of pocket. Just text the word wire to 9898-9-8-9-8 and get a free Infocat on gold today. That's the word wire to 9-8-98-8-8-t today.

Joining us now is E.J. Antony Research Fellow at Heritage Foundation's Center for the Federal Budget. E.J., thank you for coming on. Yeah, my pleasure. So can we start at the beginning for the non-economists out there who are not familiar with some of the terminology like you are? What is a tariff and how do they work? A tariff is essentially just a tax on trade, specifically international trade. The way it works is that an importer has to pay a tax, at least directly. Now, that doesn't mean the importer ultimately is the one who pays the final tax. What I mean by that is the importer can simply increase the price at which he or she sells his or her product to the American consumer, in which case the tax incidents, or in other words, who ultimately pays the final tax would not. be the importer, but would actually be the American consumer. But I think it's important to remember that, again, this is just a tax on trade, in this case, international trade. It functions exactly the same

way as the income tax or the sales tax does just domestically. And the expectation for most imports and exports is that there is going to be some sort of tariff imposed, correct? That's correct. There are a lot of both tariffs and what we would call non-tariff barriers on the international stage today. And one of the things that happened in the Trump administration, there was a lot of talk about increase in tariffs, but there was not a lot of attention paid to all of the decreases in tariffs that were also accomplished. This is what I think the former president means when he talks about both free and fair

trade, using tariffs essentially as a weapon, a negotiating tactic, if you will, to get a level playing field for American producers abroad. Now, speaking of the Trump-era tariffs, What items did the Trump administration target and did those tariffs work? Well, one of the things they targeted was Chinese steel. And there actually was a very, very positive impact from that, although there was a small increase in the price that American consumers and American businesses had to pay for those steel imports, about 80% of the tariff actually just got eaten by the Chinese producers.

In other words, the Chinese producers were not able to pass along, the full freight of that tariff to consumers in the American market, whether that was individual consumers or businesses. The reason for that is because there were too many alternatives, both produced domestically but also produced in countries like Sweden, where the price was nearly the same. And so if the Chinese exporter were to, again, increase their selling price by the full cost of the tariff, then it would have been prohibitively expensive. Everyone would have just bought domestically or bought from producers in other countries, again, like Sweden. So the result of that was essentially a countering of the subsidies which the Chinese steel industry receives from the Chinese

Communist Party. Ironically, you ended up having Chinese taxpayers paying for that subsidy, and then the steel company paying the tariff to the U.S. Treasury. So in a very roundabout way, Chinese taxpayers were paying the U.S. Treasury. So that was an example of an extremely successful, tariff approach, the Biden administration has left many of these tariffs in place, yet they continue to criticize Trump and his economic policy. How do Biden and Harris reconcile that? This is a great question. I don't think you can square that circle. They have been in power now for almost four years. They have had countless opportunities to reverse so many of the economic policies of President Trump, some of which they have, but regarding tariffs, they haven't. And it's

completely unclear as to why. Again, this has been at their fingertips available for them to do at any time, and yet they have left all of these tariffs in place, possibly because they have actually been very, very successful, despite the rhetoric out of the left. Now, on the campaign trail, Trump has proposed tariffs as high as 60% on imports from China, 10 to 20% on global imports generally are these good ideas. And why, as the Atlantic has highlighted, is the legacy media, mocking these proposals? Well, the same legacy media that is mocking the proposals of President Trump also told us that we weren't going to have any inflation when Joe Biden and Kamala Harris started spending, borrowing, and printing trillions upon trillions of dollars we didn't have. This is

also the same legacy media that when Trump was first inaugurated in 2017 told us it was going to cause a stock market collapse, economic calamities, etc. So they have been wrong time after time. I frankly don't know why anyone would listen to anything they say, if anything. you're better off just assuming the opposite of whatever they're telling you. But that aside, there's no reason to believe that any of the tariff strategies that Trump would pursue in a second term would cause any of these deleterious effects. But one of the things to remember is that Trump uses tariffs as a weapon. This is tactical bombing, not strategic bombing. This is not the Smoot-Hawley tariff of 1929, for example, where we essentially carpet-bombed international trade,

by imposing wildly high tariffs in the name of protecting American industry. Protectionism when it comes to tariffs always ends very, very poorly. But if you're using tariffs to raise government revenue, as we did for all of our nation's history before the income tax was put in place, if you're using tariffs as a negotiating tool, those are conditions that, again, have proven to be very, very successful when you look at the historical record. And Trump has been perhaps the most successful. when it comes to using them as a negotiating tool. Now, a lot of the trade discussion revolves around China for good reason.

They're the world's largest exporter, a massive economic power. Where does the U.S. China trade deficit stand now? It is still in the hundreds of billions of dollars, but one of the interesting things that has happened in the wake of COVID has been an acceleration of the decoupling of the United States and China. So we seem to be at a turning point, if you want to take us all the way back to Richard Nixon when he went to China and really opened up, you know, both nations opened up each other's markets to one another. And we thought that that was going to moderate China. Ironically, it ended up moderating us. We have become less free as opposed to them becoming more free. But it seems like we, again, are at a decoupling cusp or, you know, a change in the winds, if you will, here, where we are increasing trade with other partners, whether that's Canada and Mexico, or even one.

further abroad, like India, for example, whose manufacturing sector is growing faster than any other in the entire world. And so as we develop deeper ties to these other trading partners, not only is international trade overall with China declining, but our trade deficit with them should also diminish over time. We saw an NBC report say that the trade deficit with China is actually the lowest since 2010. They actually credited Trump's tariffs for that. So did his tariffs actually improve the trade deficit some? I think so, again, because one of the things that it did is any of those instances where Chinese manufacturers were not willing to eat most of the cost of the tariff, in other

words, pay it themselves. When the manufacturers tried to pass the full freight on to the American consumer, the American consumer chose alternatives. And some of those alternatives were as making those products domestically. And so, again, it's not simply a matter of all of these costs. costs are guaranteed to be passed along to consumers, which is one of the things that the legacy media is asserting today. But that simply is not true. It's not true theoretically, and it's not true either empirically when you look at the historical record. The Biden administration, we mentioned,

has been critical of Trump's tariffs while maintaining a lot of them, and they actually imposed some new ones. 18 billion dollars worth of tariffs on Chinese goods went into effect just last Friday. What products were affected by these Biden administration tariffs? Well, unfortunately, this really focused on much of the green energy agenda, if you will, and different products and subcomponents related to that agenda. And the reason that's problematic is that you very often times are looking at things where China has a near monopoly. And so this will be exactly the opposite of the effects we saw under Trump, where the American consumer had alternatives. And so now what you're going to do is you're going to see the full freight actually passed

on to the American consumer. Now, it'll be dispersed across a great many products and a great many industries. So it's not as if you'll see something like the cost of a solar panel for your roof go up by 200%. But again, you will see cost increases from that. And you can argue that this is still a kind of tactical as opposed to strategic bombing. But ironically, you're tactically bombing your own warehouses instead of the enemies. So it will effectively drive up the costs of green energy, if I'm hearing that correctly. Yes, I think that's very fair to say. And again, it goes back to this idea that the American consumer and American businesses also, because some of these things are intermediate goods, not final goods.

But Americans, whether it's businesses or consumers, do not have as many alternatives frequently for these types of inputs as they would of four or five years ago when the Trump tariffs were put in place. It frankly is just a very good example of the tactic being applied poorly. Now, you mentioned protectionist policies. There's something else going on here with Trump's proposed. He's trying to keep manufacturing in the U.S. He said he would impose a hefty tariff on John Deere if they moved production out of the country. We've seen this also with some automakers.

Can you explain how that kind of tariff works related to U.S. manufacturing? Is it something that can be effective? Well, it depends. Very oftentimes it can be effective, but that doesn't mean it's the right thing to do. In other words, you might have better options out there. You know, what you're essentially saying to the business is, instead of your three options being produce it here and make less money,

produce it abroad and make more money or shut down, you're essentially making one of those three completely unviable. And so now the only two options are shut down or make it here, but make less money. That's going to cause a flight from shareholders. It'll cause a flight of investment capital. And it can cause a lot of problems for that business. It can even result in fewer people being employed and less products being made. So a much better alternative in that type of investment,

instance would be to say, why is it that manufacturers can't produce here and can't produce here viably? Now, sometimes it is because we tend to tax things domestically at a higher rate than we tax the imports. This is the whole drive behind what's called a border adjustment tax. It aims to essentially cancel that out and give American producers a level playing field against their foreign counterparts. However, another big problem is the regulatory burden that American manufacturers face here at home that you don't see abroad. And this amounts to literally tens of thousands of dollars per worker. In fact, if you have a manufacturing employee who's making $50,000, the regulatory burden on the employer can be another $50,000. And so what looks like a $50,000

employee is actually a $100,000 employee in the eyes of the employer. So all that to say, the American worker needs to be more than twice as productive as his or her foreign counterpart, assuming that foreign counterpart is getting paid the same amount in order to be competitive. Now, if their foreign counterpart is getting paid less, then the American worker needs to be even that much more productive and therefore competitive in order to keep his or her job. So we don't want to understate just how bad the regulatory burden is on American manufacturing and just how much capital flight out of this country that has caused. Final question. Last weekend, U.S. trade representative Catherine Tai talked about tariffs as a useful tool that helps the middle class and empowers

the working class. Do you believe that's ultimately a fair framing of the potential impact of tariffs? Well, I think the biggest thing to remember here is the fact that tariffs are just a tax on international trade. They function exactly the same as taxes on domestic trade, like a sales tax, like an income tax. And what you really want at the end of the day, if you're going to tax transactions, is you want to tax all transactions exactly the same, because otherwise you'll introduce economic inefficiencies, because you inadvertently will end up favoring certain types of transactions as opposed to others. So if we had a world where there were no tariffs, and the only thing we taxed was domestic trade, you would actually be encouraging trade and production to move

abroad because it would be cheaper, all else being equal, to import things as opposed to making them here at home. And so if you can get into a situation where through tariffs, you now have the same taxes on imports that you do on domestic production, again, you have leveled that playing field and you allow American businesses and American workers to compete. And one of the things that has really gutted the American middle class over the last several decades, and one of the things that has really helped manufacturing overseas has been this push to reduce taxes on inputs while increasing taxes on the things that are still made at home. Look, if you tax something more, you get less of it. And if you tax something less, you'll get more of it. That's just Econ 101. And so as we have taxed imports less,

but taxed domestic production more, we have seen that violent swing in production. And we have seen that manufacturing flight accelerate out of the United States. Has the Biden administration made that worse or lessened that domestic burden? Well, I think with legislation like the Inflation Reduction Act, which was a complete misnomer, by the way, but that aside, I think legislation like that has actually helped to make the situation worse because it has introduced not only new taxes but also new regulation on different types of energy production here at home, while not imposing the same kinds of taxes and regulations on that produced abroad. And also, not simply energy, but also a lot of products that Americans

use every single day. You think of a home appliance, whether it's a refrigerator, a clothes washer, or a dishwasher. Again, you name a home appliance, I can pretty much guarantee you that this administration has imposed new regulations on it. And one of the problem, is that these are not simply regulations in terms of how much water or electricity or natural gas these appliances can use. It also has to do with regulations regarding their production. But those are regulations that only apply to production here at home. You can make the exact same thing abroad in a much less environmentally friendly way or in a much less labor friendly way. And it will not have to meet those same stringent standards. And so again, you have simply encouraged production to leave this country

and to go overseas. And when that production leaves, the jobs and the incomes go with it. We can't afford prices going up any more or any more jobs lost. E.J., thank you so much for joining us. Thank you so much, really. It's my pleasure. That was E.J. and Tony, research fellow at Heritage Foundation's Center for the Federal Budget. And this has been a Saturday edition of Morning Wire.