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HOW TRUMP’S TARIFFS WOULD RADICALLY REDISTRIBUTE WEALTH UPWARD  
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David Cay Johnston
September 20, 2024
The New Republic
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_ You’ve surely read that tariffs would just tax regular Americans.
You may not have read how they’d work to make the rich richer. _

"Donald Trump- Caricature", by DonkeyHotey (CC BY 2.0)

 

Donald Trump’s tariff proposal is worse than even his critics say.
Much worse. Trump keeps telling audiences that he’s going to make
China and other countries pay taxes to the American government. As
even right-wing economists are acknowledging, that’s utter
nonsense—as fanciful as his claims that he would make Mexico pay for
a wall on our southern border.

A tariff is, in effect, the equivalent of a national sales tax on
imported goods, as any economics professor will tell you. Think of it:
If we impose a 10 percent tariff on a dishwasher made in China, the
manufacturer or importer just raises the U.S. price by 10 percent.

But it’s much worse than that because of how domestic manufacturers
will react should the Trump national sales tax tariff be imposed. The
Trump tariff will make people who own domestic manufacturing companies
rich beyond their greediest dreams, aggressively redistributing wealth
and income upward in the United States.

How would the Trump tariff do this? Imagine for a moment that you own
a company that makes cars. And let’s assume, to keep the math
simple, that each vehicle coming out of your factories sells for
$10,000, of which $1,000, or 10 percent, is your profit.

Chinese carmakers sell their cars in the U.S. for the same price.

Trump then imposes his tariff. He doesn’t need to ask Congress to do
this. Lawmakers have already granted presidents broad authority to
impose tariffs. Trump says he will slap a 60 percent tariff on
imported goods from China.

The dealers who sell Chinese cars in America will have to raise their
prices to $16,000. If you buy a Chinese car, you will pay that tariff,
not China. Indeed, the only harm to China would be selling fewer cars
because the tariff would make Chinese cars too costly for many
Americans.

But remember, you own an American car company. Will you continue
selling your cars for $10,000 to earn a $1,000 profit per vehicle? Not
a chance. A fundamental economic theory is that capitalists seek to
maximize profit. Every business and finance school teaches this
bedrock principle: profit maximization.

Trump’s tariff means you can raise the price of your vehicles to
$16,000 and not lose any market share. However, the Trump tariff
doesn’t apply to you since you are a domestic carmaker. That means
you will collect not $1,000 profit per car but $7,000, all paid by
your customers.

But because profit maximization is your goal, you will likely undercut
the Chinese car companies. To simplify the math, you would charge
$15,000 for each car. That’s a large enough discount that some
people who want a Chinese car will purchase your American-made car
instead.

That $1,000 profit you made on each car will skyrocket to $6,000. That
extra profit comes at no cost. You won’t have to hire more
autoworkers, engineers, and salespeople, or spend money on enlarging
your factories, or add alluring bells and whistles to your vehicles.
Thanks to Trump, you will pocket six times as much profit per car.
Sweet.

You can see why people who care only about money and have no social
conscience would be eager to support Trump’s campaign and donate
millions of dollars. Even if car sales fall by half, they will pocket
more money than today.

Trump’s tariffs stand to make you so much money that you’d be
laughing not just on your way to the bank but on your way to your
megayacht, private jumbo jet, private Caribbean islands, and your many
mansions.

Businesses in America typically earn profit margins of between 5
percent to 15 percent of revenue. Companies with little competition
typically collect larger profits.

Digital companies often earn vastly higher profits because they have
almost no labor costs. That’s because they get you, the customer,
and software to do the work. We don’t call this a slave labor
economy because the digital companies don’t own you. But they own a
piece of your time, and, like Tom Sawyer getting other kids to
whitewash the fence, they get you to do their work for zero
compensation.

At $15,000 a vehicle, thanks to Trump, as the owner of a car company,
you will pocket 40 percent of the sales price as profit.

The Trump tariff would definitely reduce the volume of cars sold. Many
people won’t be able to afford cars that cost 50 percent or 60
percent more than today. Therefore, they’ll keep their cars longer.
Trump’s national sales tax will benefit auto mechanics as people
spend money to extend the life of their cars. Since you own a car
company, this will bring you a different stream of profits—from the
spare parts you sell to mechanics to repair and maintain the cars you
sold in the past.

So the net effect of Trump’s tariffs would be to raise the price of
goods made in China as well as goods made here in America.

Whether buying single-use wooden utensils for a backyard barbecue,
computers for your children to do schoolwork, or new shoes, you will
pay much more to buy Chinese _or_ American-made goods.

Now, if you think America’s problem is that the rich don’t have
nearly enough—well, please vote for Donald Trump, because he has an
effective solution for that problem. Just don’t complain later that
you didn’t understand that the reason you are driving an old beater
and forgoing vacations with your kids to make payments on your new
superpriced domestic car and other goods is that you didn’t know
that Trump had a plan to stealthily siphon money from your pocket so
the already superrich could be even richer.

_David Cay Johnston
[[link removed]] @DavidCayJ
[[link removed]] is a Pulitzer Prize–winning
investigative reporter and Trump biographer, is a professor of
practice at Rochester Institute of Technology._

_The New Republic [[link removed]]was founded in 1914 to
bring liberalism into the modern era. The founders understood that the
challenges facing a nation transformed by the Industrial Revolution
and mass immigration required bold new thinking._

_Today’s New Republic is wrestling with the same fundamental
questions: how to build a more inclusive and democratic civil society,
and how to fight for a fairer political economy in an age of rampaging
inequality. We also face challenges that belong entirely to this age,
from the climate crisis to Republicans hell-bent on subverting
democratic governance._

_We’re determined to continue building on our founding mission._

_Sign up [[link removed]] for a TNR
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* Tariffs
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* economic inequality
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* taxes
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* Donald Trump
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