MAGANOMICS - COMPARE TARIFFS WITH INCOME TAX

9 April 2025

We'd need to compare tariffs with income tax, as ways to fund federal operations.

One thing to keep in mind is that income tax accounts for 50% of federal income and tariff's account for 2%....Well that's currently.

Tariffs were superceded in 1913 by Amendment 16. So in this sense, you could say they are a pre-industrialisation, pre-globalisation relic, a time when the state was small and the budget with it.

It is noticeable that tariffs go with this small state ideal and with nationalism, protectionism, and deregulation... with withdrawal from the world.

With today's big state big income needs, tariffs don't measure up - they depend on imports, they rest on a narrow import base of raw materials, parts and finished goods. These are variable, by volume and value, and so will vary the US government's income... worse, what happens in a recession? So they cannot replace income tax and indeed that doesn't seem to be the aim.

That's not all. As we are seeing, you get retaliation too - an unstoppable China meets an immovable America. Plus you get China bowing out of dollar-based trade.

 

Plus like sales taxes eg VAT, tariffs will hit the poorer-off ( trump's base) as it's a tax on consumption, not income, not capital gains. Income tax is a way to redistribute wealth, but not tariffs.

So if tariffs can't generate enough income these days, if they are regressive, and if they provoke our trade partners, why persist?

When Trump says that tariffs will make us billions, hundreds of billions, he's right, he is using them to pay off the staggeringly enormous national debt of 37 trillion, along with DOGE and the rest. Of course, who will be actually paying these tariffs. Will it be the foreign producer eating the tariff into a reduced cost price, or will it be the consumer paying higher prices bringing in inflation, perhaps buying less and creating a recession. 

Think like a businessman - rebuild the balance sheet.

Trump's using them to nobble America's rivals, cut costs, make the supplier pay the tariff. 

Think like a businessman.

Tariffs can be a good way to choke off the competition, giving time to home industry to rebuild, ready for a fight on a level playing field, a fair fight. But a modern economy integrated into world trade can't rely on tariffs forever.That kind of protection will eventually destroy innovation and industry, that country will make no progress. 

But as a harbour in a storm to refit the ship, it seems like tariffs are a good idea. 

Think like a businessman.

But think like an economist and you wouldn't do this - it risks advancing the recession and flooding Europe with cheap Chinese goods, further destroying their economies.