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 @DavidCayJ is a Pulitzer Prize–winning investigative reporter and Trump biographer, is a professor of practice at Rochester Institute of Technology.
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