Trade wars are not 'good and easy to win.'
Trump has ratcheted up his reckless trade war with China, implementing devastating tariffs on American companies that import goods from Chinese manufacturers that will ultimately raise costs for American consumers on a litany of products.
Trump has — wrongly — declared that China is the one paying the tariffs, and that his trade war will ultimately help the United States.
But that boneheaded and incorrect logic was directly contradicted by Trump's own economic adviser, who said on Sunday that the trade war will indeed have negative consequences for American consumers.
"In fact, both sides will pay," Larry Kudlow, the director of the National Economic Council, said Sunday on Fox News — referring to both China and American consumers. "Both sides will suffer on this."
Let's break down why Trump's ideas on tariffs are 100% incorrect.
Tariffs are, in essence, a tax on companies that import goods from foreign countries. So, it's not the Chinese who pay for the tariffs on goods they send to the U.S., it's the manufacturing companies who are doing the importing.
Those companies, then, are either forced to do one of three things:
- Accept lower profit margins — which could lead to major revenue losses that threaten their companies' employees;
- Increase the price of their goods, which ultimately means the cost of the tariffs are passed down onto American shoppers;
- Or a combination of both.
Either way, the tariffs hurt people here at home.
Trump has said that if companies don't want to incur tariffs they should simply make their products in the United States.
But it's not that easy — nor would that save American consumers money.
First of all, even companies that manufacture goods in the U.S. often use parts that are imported from other countries like China. So, tariffs will still impact those who produce goods here at home. That's just simple supply chain economics.
It's also not so simple for companies to find new suppliers or build manufacturing plants in the U.S. in the blink of an eye. Trump's tariffs already went into effect, meaning companies had no time to make changes to their manufacturing practices and their pain will begin immediately.
And lastly, it's simply much more expensive to manufacture goods in the United States. Consumers who are used to certain prices of items due to our global economy making it easier to import cheaper goods will have sticker shock at the cost of products made in the USA. Without a corresponding rise in income, consumers would simply not have the purchasing power they once had.
Economists and investors understand this.
"Economists argue about many things, but the impact of tariffs on the economy is not debated," Nicole M. Kaeding, a Tax Foundation economist, told the New York Times. "They are harmful."
It's why the stock market plummeted on Monday, when it became clear that Trump was not backing down off his tariff threats.
As of press time, the Dow Jones Industrial Average was down a whopping 620 points.
Kudlow isn't the only Trump economic adviser who understands how devastating tariffs are.
"There are a heck of a lot of U.S. companies that have sales in China that are going to be watching their earnings being downgraded next year until we get a deal with China," Kevin Hassett, the chairman of Trump's Council of Economic Advisers, said in January.