What’s Trump Doing With All This Talk About Tariffs?

 If you watched Trump last night, there is no doubt that he is stirring the pot and shaking things up!  Clearly, the Democrats in attendance were so sour they wouldn’t have clapped for anything Trump said…and Trump looked them in the eye and told them that!

But what’s all his talk about tariffs?  What might he be planning?  Are they going to upset all our “friends” in other nations?  Could they lead to a shooting war?  Won’t they make everything on the shelves at Walmart (made in China) more expensive and exacerbate inflation?

Notice that Trump said “things could get a little worse at first but it won’t last long.”  

Investment is pouring into America with massive Honda car plant, massive ship building yard, $100 billion data centers, etc…  If Honda realizes that America is going to put a tariff of $5000 on every car coming into America that’s made in Japan, they might decide that it’s better to build their cars in Indiana.  That way they can compete better with Chevy and Ford that are made in America.  Chevy might decide to close its Canadian plant and bring all manufacturing back to Kentucky to avoid the $5000 tariff on every car they used to make in Canada.

But Canada and China will instantly slap tariffs on American goods made in America and heading to their countries.  So in the end, maybe it’s not good for anyone so why do it?

This is just a wild guess, but what if Trump is planning on doing away with Federal Income taxes in exchange for tariffs?  As you will read below, up until the 1930’s, there was no income tax and money was raised for Federal programs by tariffs.

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A tariff is a tax imposed on foreign-made goods, paid by the importing business to its home country’s government. The most common kind of tariffs are ad valorem, which are levied as a fixed percentage of the value of the imports. There are also “specific tariffs,” which are charged as a fixed amount on each imported good (for example, $2 per shirt) and “tariff-rate quotas,” which are tariffs that kick in or rise significantly after a certain amount of imports is reached (e.g., fifty thousand tons of sugar).

Tariffs can serve several goals. Like all taxes, they provide a modest source of government revenue. Several countries have also used tariffs to help fledgling industries at home, hoping to shelter local firms from foreign competitors. Some tariffs are also meant to address unfair practices that other countries have used to make their exports artificially cheap.

Who uses tariffs?

Almost every country imposes some tariffs. In general, wealthy countries maintain low tariffs compared to developing countries. There are several reasons why: developing countries might have more fragile industries that they wish to protect, or they might have fewer sources of government revenue. The United States, for instance, maintained high tariffs for decades, until income taxes supplanted tariffs as the most important source of revenue in the 1930s. After World War II, tariffs continued to decline as the United States emphasized trade expansion as a central plank of its global strategy.

https://www.cfr.org/backgrounder/what-are-tariffs#chapter-title-0-3