Brief Economic Briefing

 

Once upon a time you could count on Republicans to stand for lower taxes.  No more.  In case you missed it, last Friday, July 24, President Trump imposed new tariffs of 10% to 12.5% on 60 trading partners covering 99% of U.S. imports.  In a fit of pique, an additional 50% retaliatory tariff singling-out Canada was imposed as well.

Because the cost of these additional trade taxes are paid by consumers, the Yale Budget Lab now estimates that Mr. Trump's tax increase will cost American households an average of $1,100 per year.  That is double what it would have been had the president declined to impose higher taxes replacing the global tariff that expired on Friday.  

Notably, this tax increase wipes-out the $300 - $1,000 increase in average tax refund generated as a result of Trump's Big Beautiful Bill.

Five months into the Iran war the national price of gasoline is around $4 a gallon; so there is that additional household budget item. The Strait of Hormuz remains closed.  The Red Sea's Bab el-Mandeb (Gateway of Tears) is now threatened by the Houthis.  U.S. bases throughout the Gulf States remain vulnerable to attack.  And oil is trading close to $100 a barrel.

Naturally, it should come as no surprise that with the imposition of new and higher tariffs, rising energy costs, Iran war supply chain disruptions; businesses are raising prices.  Which increases the threat of rising inflation pressures. 

In closing this has pushed yields on the 10-year treasury - a major benchmark for setting consumer borrowing costs - above 4.6%.  The bond market looks spooked.  This impacts commercial loans and pushed the 30-year fixed rate mortgage rate to its highest level of the year, a move that could chill the housing market.  Notably, this is higher than where they stood following Mr. Trump's Liberation Day announcement that sent the bond markets into a tailspin. 

Admittedly, updates and briefings are incomplete.  For instance, unemployment for the month of June was 4.2%, ticking down from 4.3% in May.  According to the US Bureau of Labor statistics total unemployed persons stood at roughly 7.09 million, reflecting a stable labor market.  

Watch the Fed today. 

President Trump Pays a Call To The Farm

Yup; the City Slicker from the Borough of Queens blew-in to Wisconsin a couple days ago and maybe got his shoes dirty.  But I doubt it. This was all for show because things have become increasingly uncertain in farmland world.  By and large, farmers continue to support the president.  Why?  Trump gets it.  The truth is not in his actual policies but in his showing-up to address their fears.  How to make farmers think he sees them; the people that live in fly-over country.

For as long as I can recall I have not held any particular fondness for the Communist Red-Chinese government.  They have raised the theft of intellectual property to an art form and have bamboozled the trade negotiators of every administration for just as long; including Trump 1.0 and now Trump 2.0 as well.

If I had a rational discussion with a Trump supporter I would hear a case that the recent troubles felt by family farmers and ranchers are simply short-term nuisances that are necessary to challenge long-standing, unfair trade practices by foreign countries; China in particular.

And I suppose that my interlocutor would likely suggest that it is only "strong medicine," such as an aggressive tariff strategy, followed-on by subsequent renegotiation that would result-in better more structurally-sound and long-term trade deals.  Fair-enough.

Yes, American agriculture is a complex subject; nevertheless, my immediate neighborhood is an almost exclusively agricultural community.  We own a farm and farm policy is of personal interest.  Consequently, and anecdotally, I hear and have some tingly sense that patience may be wearing thin. Hardly for all but certainly for some.

And I am not alone; numerous agricultural economists and trade orgs - who know more about this than I do - would argue that Trump policy-making initiatives have resulted in no small amount of financial strain for American family farms. 

Specifically, the strong medicine and its side effects include: lost export markets, rising input costs, financial instability leading to bankruptcies and dependency upon federal subsidies.  

Let's dissect each.

Mr. Trump has famously expounded-upon his love of tariffs; thusly when your only tool is a hammer every trade issue is treated like a nail.  The extensive use of tariffs - particularly Section 232 of the Trade Expansion Act - has led to retaliatory measures from major trade partners, including China.  This impacts an expansive list of stuff ranging from auto parts to semiconductors.  While most certainly the president and possibly my interlocutor might erroneously persist with the notion that foreigners pay these tariffs and make us wealthy beyond belief; the truth is that import companies pay them and pass the cost on to US businesses and consumers.  Just like a sales tax, tariffs make imported goods costlier.  Another unintended and equally unfortunate outcome is loss of market share.   

For decades China has been the undisputed heavyweight champion when it came to buying American soybeans.  It is a fact that the Chinese used to be the largest buyer of our beans than the rest of the world combined.  From the end of May through November of last year China did not purchase a single American soybean, choosing to do business with other countries instead.  As a result of Trump's import taxes China responded with an imposition of their own duties along with a boycott of American beans.  Sales, along with domestic prices, plunged.  Meanwhile, American agricultural exports to Canada decreased by more than $1 billion largely as a consequence of Canadian boycotts of American products.

Farm economists now point to the acceleration of a structural shift in markets with China permanently diverting its agricultural purchases to competing nations.  Even after a handful of temporary trade truces were reached American farmers today have a significantly reduced share of the global market.

What about input costs?  The president would tell you that tariffs are intended to protect domestic manufacturing.  And while that might be a necessary and useful tool to shield boutique specialty industries; when applied in broad swaths these trade taxes increase the cost of raw materials used to manufacture heavy machinery.

Not surprisingly, manufacturers like Deere are faced with higher production costs due to tariffs on metal, microchips and other component parts which are passed on to farmers in the form of higher prices for Deere tractors, harvesters and combines.  Even Trump knows this as the administration relented and temporarily reduced the offending taxes impacting agricultural equipment from 25% to 15%. 

And then, of course, Donald Trump made a unilateral decision to go to war with Iran resulting in the closure of the Strait of Hormuz.  This set in motion a cascade of destabilizing events that have dangerous consequences for global stability, security and the world's economy.  This has spiked energy costs and disrupted the the global supply of nitrogen and urea.  Some fertilizer prices are up 47% year-over-year.  For us here in the northern hemisphere the manure hit the fan before spring planting.  What were they thinking? 

Putting-on my financial guy hat, I am now witness to a perfect storm of reduced export commodity prices and skyrocketing operational costs conspiring to squeeze profit margins.  

According to the American Farm Bureau Federation, last year, America's crop farmers lost $34.6 billion and farm bankruptcies surged to numbers not seen since 2020.  In farm states like Iowa, Nebraska, South Dakota, Minnesota and Wisconsin there is now a sharp uptick in family farm bankruptcies and foreclosures.

To cushion the gut punch from his unilateral trade war Trump has authored the distribution of billions upon billions of direct aid including a $12 billion market facilitation package and the Farmer Bridge Assistance Program. 

These payments are a lifeline to keep farmers afloat; nevertheless, they smell peculiarly of Soviet-style central economic planning.  Or garden variety welfare; you pick.

From a purely economic perspective none of these subsidies assist the local rural economy.  Almost all of it went to multinational fertilizer and seed syndicates and large corporate landlords.  Moreover, welfare payments distort market economics resulting in an unstable environment where farmers become dependent on federal intervention rather than stable global commerce.  See previous paragraph.

So when I opened with the observation that the president's visit was mostly for show ask yourself if following Mr. Trump's departure did anything change for Wisconsin farmers?

Have lost export markets returned?  Have import duties gone away?  Has the price of fertilizer, diesel or purchased and leased equipment come down?  The Strait of Hormuz might reopen tomorrow; yet because things are so horribly broken any return to normalcy will take a year or more.  That does nothing to stem the immediate rise in bankruptcies and foreclosures for family farms.  

Farmers like to joke about why they don't gamble or place wagers in the prediction markets.  They'll tell you every season already comes with enough business crippling risks to satisfy anybody's passing itch to speculate.  Ham-fisted government policy getting in the way simply exacerbates the risks.  Increasing dependency on the federal dole to mask flawed policy in both trade and war is a failed strategy by any historical measure.

Farming is hard work and unlike an IPO or private equity wealth comes slow and steady.  America's family farms are not experiencing some transitory short-term hardship; they are disappearing.  Bankruptcies were up 55 percent in 2024, 46 percent in 2025 and 70 percent already by May of this year.  It will be interesting to follow how support for the president holds-up amongst farm producers for the remainder of his term.   

Time will tell.... 

On This Day In History

On this day in 1765, the British Parliament passed the Stamp Act to fund British soldiers stationed in the colonies after the French and Indian War. The Act taxed most printed documents in the British colonies—everything from legal documents to magazines and playing cards, touching nearly everyone's daily life.

 

It was the first direct tax on American colonists and had to be paid in British sterling, a currency nigh impossible for the colonists to obtain (who had long paid taxes to colonial legislatures in local currency). Act violations were prosecuted in jury-less Vice-Admiralty courts that could be held anywhere in the British Empire.

The Act broke decades of "salutary neglect," a mostly hands-off stance from Great Britain that had allowed the colonies to prosper. At the Stamp Act Congress that fall, representatives argued that as English subjects, they could not be directly taxed without representation in Parliament, and announced a boycott of British goods. Although the British repealed the act a year later, it dug in with the Declaratory Act, which asserted Parliament's right to legislate for (and tax) colonists.

On the heels of the Writs of Assistance these taxes led to widespread protests and fed colonial resentment over British taxation.  The episode was a key stepping stone toward the American Revolution that unfolded a decade later.

Fact or Fantasy?

As a major voice in the American Libertarian movement the Cato Institute focuses primarily on policy analyses and independent research of contemporary topics including subject matter related to foreign policy, regulations, taxes and libertarian-influenced public advocacy.  

 

Naturally, over the last decade most anyone I'm acquainted-with who previously self-identified as libertarian have, for the most part, gone full-on MAGA.  Any of the remaining few diehard libertarians have gone underground or silent. Either way you slice it none of them are engaged in any meaningful dialogue with me anymore.  Which is too bad.  Productive dialogue lost and in some instances friendships broken is a waste.  I'm not sure how to fix or repair that condition; or if it is even worth the effort.  Time will tell and apologies for the digression.  

 

The purpose of this post is to discuss a recently-published commentary from the Cato Institute titled:  Trump's $18 Trillion Fantasy.  This article also appeared in The Dispatch on February 19, 2026 immediately preceding the recent groundbreaking SCOTUS tariff ruling.  You'll find it linked more than once in the post and I encourage you to read it at your leisure.  What follows is a summary of Cato's critique of White House claims that tariff policies have secured more than $18 trillion of new investment in the United States. 

 

They've performed yeoman's work in producing this commentary and hopefully this summary will tweak your interest in rolling-up your sleeves and engaging in some cognitive dissonance.

 

The key criticism from Cato is that a purported $18 trillion in new investment into our economy claimed by the White House is unsubstantiated and doesn't hold-up under scrutiny.  Trump's hyperbole and puffery is famous; and Cato describes the figure alternately as fantasy or a hoax correctly pointing-out that the number is nearly as large as the entire GDP of China.  Lacking any published evidence from the departments of Commerce or Treasury, or the Federal Reserve the real number, whatever it may be, is naturally much, much smaller.

 

The White House lists 132 'deals' totaling approximately $9.6 trillion; the lion's share of that doesn't come close to meeting the definition of 'new investment'.  Significantly, this figure includes previously-announced or planned technology ventures, routine and on-going business expenditures, orders already in the pipeline and vague promises lacking any enforcement mechanism.  The later are basically a verbal IOU with a promise of 'we'll see'.  

 

Foreign 'deals' are even sketchier as most of the 'pledges' lack even the creditworthiness of a verbal IOU as they come from countries unable to afford them anyway; or the respective government lacks any authority to dictate private business investment.  Previous pledges to purchase military aircraft and equipment or those that come with an implied Trumpian threat of a 'protection racket' do not count.

 

In my own view much of this is political theater intended to pacify Trump's mercurial tendencies before the Supreme Court brought-down the hammer on inconsistent acts provoked by one sole personality. 

 

On tariffs alone, Trump's claim of a manufacturing boom doesn't jibe with the continued decline of direct investment in American manufacturing which, in reality, has been falling and is continuing to fall uninterrupted.  Sure, tariffs may induce some domestic investment through protectionism; nevertheless, this comes at the cost of higher prices for business and consumers.  The math doesn't work.

 

Cato's concludes that the $18 trillion figure is a politically-motivated exaggeration used to justify a flawed and inexplicably contorted obsession with a high tariff regime that is lacking any basis in recorded economic data or accounting.

 

But don't take my word for it.  Read the the commentary in its entirety and draw your own conclusions about how much of it is fact or fantasy.

 

We've been to this rodeo before. 

 

 

Fools and Lapdogs

The U.S. merchandise trade deficit hit a record $1.2 trillion last year, despite President Donald Trump’s promise to eliminate it by imposing the highest tariffs in eight decades on foreign-made products.

Thursday’s Commerce Department report represents the first full-year assessment of the president’s ambitious reordering of global trade. The persistence of the deficit in the face of steep new taxes on imports from China, the European Union and scores of other nations reflects the limits of Trump’s blunt policy tool.

As expected, the Supreme Court today nullified Donald Trump's signature economic policy this morning in a ruling that invalidated the president's arbitrary and capricious imposition of trillions of dollars of import taxes on our trading partners around the world.  

Naturally, the President's response was to be presidential and call the justices fools and lapdogs for ruling against him on tariffs.    

 

Back in August the president threatened the court stating that this ruling would: Literally destroy the United States of America. 

Well, it's happened and in the long term we're all likely to be better-off for the ruling.  Tariffs, on their own, are not likely to raise-up or destroy the country inasmuch as imported goods account for only about ten percent of our total economy.  Because we are largely a service economy tariffs don't have much direct impact on things like education and healthcare.  Manufacturing constitutes less than ten percent of the US economy.

Nevertheless, the imposition of import taxes at the sky-high levels the administration imposed are a tax on all consumers, business and manufacturers shrinking the country's Gross Domestic Product by an estimated .3 percent per year. If you put a number on that it amounts to roughly $90 billion a year in losses. That isn't insignificant but nowhere close enough to destroy America.  It just raises everyone's cost of living, jeopardizes farmers, ranchers, small business and contributes to inflation.

So where is this all going to lead us?  Too early to tell but I suppose there are companies for whom imports are a necessary part of doing business; and they're going to want a tax refund. 

Meanwhile, I guess none of us are getting the tariff dividend we were promised and the income tax isn't going to be replaced by tariff revenue.  Of course the DOGE dividend never showed-up in my checking account either.  

Money talks, baloney walks.....

Pretty Good Chow If You Can Get it

On the heels of two evenings of venison wieners yesterday's dinner was a terrific change of pace.

Those of you who are NYT subscribers will recognize this as Ali Slagle’s Salmon Teriyaki recipe from last week.

When I was in Sturgeon Bay the other day I purchased a bag of North Atlantic wild caught salmon fillets. Five of them - just like the one in the photo - individually frozen and shrink wrapped.  Product of Norway.

They weren’t cheap, yet the stiff import tax (tariff) was less than anything from China or Vietnam. So, there is that and wild-caught vs. something farm-raised; quality matters for something.

Texas Basmati rice and salade César as sides. There’s enough of that sweet and salty salmon deliciousness leftover for a Sunday morning omelet too.

Pretty good chow if you can get it….

Semiquincentennial

On the road to independence it is 1760 and the British government has imposed the Writs of Assistance on their subjects in the American colonies.  Heretofore, the writ applied to citizens in Britain under a 1662 Act enabling customs officials to combat fraud and smuggling.  The practical impact in North America is that the writs were broad search warrants that allowed officials to enter homes, shops, warehouses, ships or businesses at any time to search for smuggled goods without having to disclose what they are looking for.

The colonists were strongly opposed to these measures because it was a violation of privacy and security of property and was without limitation.  Because the writ had previous not applied to British citizens in the colonies they became a symbol of the tyranny of King George and further fueled resentment leading up to the revolution.

Massachusetts lawyer, James Otis, famously argued against the writs in 1761 articulating core colonial grievances and popularizing the phrase - No taxation without representation.

Faneuil Hall in Boston was built in 1742 as a marketplace and meeting hall.  This building and James Otis were attached at the hip.  Otis delivered fiery speeches at this location protesting British policies and advocating for independence from British rule.  Faneuil Hall's assembly room served as a rallying location where patriots organized resistance, voiced their grievances and advocated unity in their resistance.  It eventually earned the nickname:  Cradle of Liberty. 

When the Stamp Act (1765) was imposed Boston patriots gathered at Faneuil Hall to denounce the tax and organize boycotts of British goods.  Samuel Adams and the Sons of Liberty used the hall to rally support and coordinate their resistance with other colonies.

The Townshend Acts (1767) imposed new duties on imported glass, paper, paint and tea.  A year later British officials seized John Hancock's ship Liberty claiming  it was involved in smuggling wine without payment of duties.  While it is true that Hancock was indeed a smuggler - and a flourishing one too - the seizure sparked outrage as Hancock was a wealthy merchant and a popular fellow.  Bostonians viewed this action as political targeting and responded with rioting and attacks on customs officials.  

The people were pissed-off.

The unrest escalated to the point that Britain sent troops to Boston later in 1768 to impose order.  The presence of troops in the city to enforce the law directly increased tensions between colonists and soldiers.  This occupation by military forces set the stage for the Boston Massacre two years later.

Grift Or No Grift?

From Friday there was this...

In a retaliatory move, president Trump threatens 100% tariffs on Chinese goods.  The president made the threat after Beijing imposed new global restrictions on the use of rare earth minerals, which are vital supplies for U.S. makers of chips and batteries.

Just curious how many Trump family members and cronies shorted the market before his tantrum?

On a serious note, restrictions of rare earth minerals is a big deal with all sorts of implications.  Canada holds some of the world's largest known reserves of rare earth elements (REEs), with an estimated 15.2 million tons of rare earth oxide in 2023. Unfortunately, very little of this is being developed.  Rather than working co-cooperatively with our friendly neighbors to the north our president has adopted an adversarial and belittling attitude towards Canada; creating unprecedented resentment toward his administration by Canadians.  Naturally, what do I know?

This is revealing of the administration's lack of coherence on this subject.  And the only response is a Trumpian fit of pique and threatened tariffs?

Is it just a big grift?  Or sloppy deal-making?

Monday will reveal more..... 

EDIT TO ADD:

Jones Act

Peter suggests that if you tasked him with creating a list of the greatest threats to America, he’s not sure cabinets, name-brand drugs, and semi-trucks would be on there...but the President disagrees.

 

So, get ready for a massive economic bulldozer to hit the US due to these new tariffs. With 90% of all US cargo moving by truck, these higher costs will create a ripple effect through every sector. 

This all started back with the Jones Act, which made domestic shipping prohibitively expensive, causing a shift in freight from ships to rail to (almost entirely) trucks.

Since those trucks are made across an integrated North American supply chain, dipping into Canada, the US, and Mexico, tariffs are hitting hard. That means everything Americans consume, from your food to your clothes, will cost a whole lot more.

 

Semiquincentennial

On the road to independence it is worth noting a couple of key events  occurring here and abroad.  The Seven Years' War - sometimes called the French and Indian War - was a global conflict (1756-1763) between Britain and its allies against France and its allies.  Here, in North America, it was a battle against the French and their Native allies for territorial control. Britain emerged victorious and gained control over all of Canada and land east of the Mississippi making it the dominant power in North America.

Nevertheless, not all was good for the British Empire.  The conflict nearly doubled Britain's debt and in order to pay it off Parliament and the Crown imposed new taxes on their colonists.  The Sugar Act, Stamp Act and Townshend Acts and tighter enforcement of foreign trade encouraged the growth of colonial resistance.

In order to avoid conflict with Native Americans, at the close of hostilities, Britain restricted any further westward settlement.  Eager to expand into new lands the colonists were angered by the crown imposing this limitation. 

The war also involved the cooperation of colonial forces with British regulars imparting a significant measure of military training for civilian farmers and merchants.  Coincidentally, this training forced the colonies to cooperate with one another politically and otherwise; thus laying the groundwork for future collaboration against Britain.  The war also left troops in North America and a standing army was viewed by the colonists as an occupying force. 

Following the death of King George II, King George II acceded to the throne in 1760.  He was only 22 years old and his reign marked a turning point for the colonies as his policies and ministers made George a central target for colonial blame and resentment.  

He came to be viewed as a tyrant. 

Semiquincentennial

The Seven Years' War (1756-1763) also known as the French and Indian War was a direct contributor to American colonists' path towards independence.

The costs of the conflict left Britain's treasury depleted and deeply in debt.  To raise revenue Parliament imposed additional trade restrictions and additional taxes on the colonies.  The Sugar Act and the Stamp Act led to heightened resentment.  Furthermore, what little remaining autonomy the colonies enjoyed ended as Britain escalated its control over trade and governance.

Fighting alongside British troops gave colonial militias combat experience  and fostered a sense of shared American identity.  With the France largely banished from mainland North America the colonists felt less dependent on British military protection and grew more confident about the notion of self rule.

Economic pressures at the hand of the crown and British Parliament and a confident post-war attitude on the part of the colonists fed a simmering divisions and the revolutionary movent of the 1970s.

On October 25, 1760 George III ascended the British throne following the death of his grandfather, George II.  He was only 22 years old and his nearly 60 year reign  was marked by three significant events; the Seven Years' War, Britain's loss of the American colonies and the birth of modern party politics in Britain.   

1761 brought the Writs of Assistance - a broad and general search warrant that allowed British officials to enter homes, shops or warehouses without specifying what they were searching-for.  Ostensibly the purpose was to thwart the smuggling of goods that avoided British import duties.  

James Otis was a prominent Boston lawyer who resigned his royal post as Advocate General so he could argue the writs in the Superior Court of Massachusetts on behalf of  incensed Boston merchants.  The colonists were Englishmen after all and Otis contended that the writs violated natural rights afforded under the British constitution; especially protections against unreasonable searches.

Otis lost the case but his courtroom oratory became known far and wide.  John Adams - then a young lawyer - said:  Then and there the child Independence was born.  Historically, this episode was further evidence of strained colonial rights and imperial authority.  Fourth Amendment protections in the US Constitution forbid unreasonable searches and seizures. 

The Sugar Act of 1764 lowered import taxes on foreign molasses but ramped-up enforcement to ensure compliance.  It also taxed imported wine, coffee and textiles to raise revenue and exert control over colonial trade.

The Stamp Act of 1765  required colonists to buy and use special stamped paper for legal documents, newspapers and other printed materials.  It was a direct tax on the colonies to raise revenues to pay Britain's war debts and defense costs.  

On the heels of the Writs of Assistance these taxes led to widespread protests and fed colonial resentment over British taxation.

 

Conspicuous Consumption

The term "conspicuous consumption" was coined by sociologist Thorstein Veblen in his 1899 book, "The Theory of the Leisure Class".  Veblen used the concept to describe the practice of purchasing and displaying expensive goods and services primarily to signal one's wealth and social status; rather than for their practical utility.

Consumer spending accounts for roughly 68-70% of the U.S. Gross Domestic Product (GDP). This means that consumer spending is the largest component of the U.S. economy, and a major driver of economic growth.  This is known as personal consumption expenditures (PCE).  Specifically, services make up roughly two-thirds of PCE making them the primary contributor to consumer spending.  While the exact percentage changes from year-to-year - as the largest share of consumer spending this has not changed.  As for the rest of GDP, manufacturing, agriculture, government spending, net exports and investment account for the balance.

Consumption has begun to slow this year.  Adjusted for inflation in 2024 consumer spending grew almost 3%.  That fell to 1.4% in the second quarter of this year and is expected to remain tepid.  Time will tell. 

If you're wondering where I'm going with this, according to Moody's the top 10% of earners now account for about half of consumer spending.  That happens to be up from 36% three decades ago.  This is rather rarified atmosphere as these are consumers with household incomes north of $250,000 a year.  They're doing just fine.   

The bottom 80 percent of earners have maxed-out their consumption with their spending; now basically tracking with inflation. 

This may have implications for both the near and long-term domestic economy, social policy and a whole lot more.  Exactly how; we'll have to wait, see and ponder.  For all the chatter about import taxes (tariffs) and their outsized impact (positive and negative) on manufacturing, that sector of the economy is playing second fiddle.  I'm not saying it's unimportant; it is significant as it creates $2.69 of economic activity for every $1.00 spent within that sector.  But it's direct contribution to GDP is only 11%.

(Source: The Washington Post/Moody’s Analytics).

Looking at the graph, on the chance you are unfamiliar with the term; here's the definition of Revenge Spending.       

Fun Fact:  Import duties (the Trump tariffs) apply only to imported goods; not services. Outsourced services do not cross borders in a shipping container or face customs inspections.  So, whether you're tapping into global talent for customer experience or partnering with an expert team for end-to-end loan servicing; no import tax.

The Math Doesn't Work

 We're going to make a lot of money and we're going to cut taxes for the people of this country.  It will take a little while before we do that, but we're going to be cutting taxes and it's possible we'll do a complete tax cut because I think the tariffs will be enough to cut all of the income tax. 

- President Trump, April 27, 2025  

The line from the White House Information Minister, various Cabinet Secretaries and the President himself is that we are awash in tariff revenue wealth.  Millions, billions and trillions of dollars; all willingly paid by other countries.  The president has even floated the notion about creating an External Revenue Service to collect the tariffs and replacing the Internal Revenue Service in collecting income taxes.

We were at our richest from 1870 to 1913.  That's when we were a tariff country.  Perhaps the president has drawn his inspiration from 19th century America immediately before the establishment of the federal income tax.

Of course if you know your American history when tariffs were the primary source of federal revenue government was much smaller; federal spending was barely two percent of Gross Domestic Product (GDP).   Nowadays, federal spending is north of 23% of GDP.  It would be impossible to rely on tariffs to meet current spending levels.  Heck, we're already running ginormous annual deficits that are slated to increase further with the passage of recent legislation. 

Tariffs (sometimes called a duty) are a tax imposed on imported goods and services.  The tariff is not paid by other countries; the US import company is required to pay the tax.  This makes imported goods more expensive to US companies and consumers. Consequently, domestic producers may benefit from reduced competition potentially protecting domestic jobs and industries.  Decreased competition may also result in domestic producers raising their prices as we have seen in the steel industry. 

In 2024 individual income taxes generated roughly $2.4 trillion in revenue to the government representing nearly half of all federal revenue.  Because tariffs apply to the narrow sector of imported goods they would likely generate only a fraction of that amount resulting in ballooning deficits.

Furthermore, because tariffs apply to imports (as opposed to broad-based income) this would result in a disproportionate economic impacts with industries relying on imported materials or components being hit the hardest.  

Tariffs also increase costs to domestic companies and consumers. 

Conversely, if tariffs replaced the income tax your wages/salary would theoretically become tax-free.  This shift would allow you to keep more of what you make.  Sound appealing?  As a trade policy tool tariffs are probably more effective than as a revenue generator.  

The economic reality is the challenge of replacing income tax revenues with tariffs would require import taxes on a scale of enormity so high as to become disruptive to consumers, business, supply chains, trade relationships and the US dollar.  They won't fix our country's  persistent problem with annual deficits or balance the budget.  The notion of issuing everyone a government check and calling it a tariff rebate is absurd.  Tax the citizenry with import duties and then return a small piece and call it a tariff dividend?  PT Barnum had a term for this so if you have a rational explanation I want to hear it.

Meanwhile, the best summation of this challenge can be found over here at the Tax Foundation.  It's a short read of only a few minutes and worth your while.  

Finally, revenues from import taxes have been growing for months, and the latest data shows that the U.S. has collected $130 billion from them as of August 15.  That is $73.8 billion, or 131.2% more, than the same time last year. But that’s still far short of the $2.4 trillion federal income taxes brought in last year.  The running totals are updated daily and can be found here at the Trump Tariff Income Tracker.  You might want to bookmark this web page so you can follow along.

Bottom line?  The math doesn't work.....

 

Picking Winners and Losers - Part 2

Who’s winning?

Domestic US automobile manufacturers are subject to a 50% tariff on steel - resulting in the highest steel prices on the planet, a 25% tariff on parts imported from Mexico and Canada along with a 65%+ tariff on Chinese LCDs and electronics. 

The European Union can manufacture cars with zero steel tariffs, 4% Chinese tariffs, and zero tariffs on imports from Mexico and Canada. 

EU auto exports to the US are subject to a 15% tariff.

The Art of the Deal.......

Picking Winners and Losers

I'm feeling pretty good about front-running the most serious impact of tariffs on our household economics.   New appliances, vehicles, water heater, laptop, tablet, iPhone, including locking-down the pricing of a steel roof on the house eighteen months ago.  

I know I sound like a broken record but contrary to what White House Press Secretary Karoline Leavitt or Commerce Secretary Howard Lutnick will tell you about other countries paying the tariffs they're not playing it straight.  Tariffs (sometimes called a duty) are a tax on imports.  Tariffs are not paid by the other countries.  They are paid by the US importer.  The importer might "eat" some of the tax but because they have to turn a profit they generally pass it on to the purchaser of the imported goods.  

Tariffs are a tax (just like a sales tax) paid by US companies and consumers. 

Which leads me to this tidbit.

American-made steel is now the most expensive steel on the planet.

Only about twenty percent of the steel sold domestically is imported.  The steel tariffs, previously at 25%, were raised last month to 50%.  Consequently, steel imports became more expensive.  Naturally, imported steel has declined in volume allowing American companies to increase their market share and raise prices to match that of imported steel.

Domestic trade policy has created an opportunistic landscape that allows domestic producers to simply charge more.  Why, you ask?  

Because they can.  

Scott Lincicome, vice president for trade policy at the Cato Institute said it well - It's just pure protectionism and cronyism. 

Heretofore, president Trump has not imposed tariffs on imports of raw materials such as iron ore, pig iron and other products that are precursors to steel production.  Nevertheless, that could change if he imposes a threatened fifty percent tariff on all imports from Brazil.

In a fit of pique Trump has accused Brazilian leadership of conducting a witch hunt against his pal former far-right President Jair Bolsonaro; menacing the South American country with a retaliatory tariff over internal politics.  This personal retribution against Brazil means American consumers would pay more for coffee, orange juice, paper and pulp and steel precursors sold to American mills. 

White House trade policy is bananas.  Does any of this come as a surprise to you?

This is called picking winners and losers.  And it seems like all of my previously, self-identified libertarian friends have gone silent.

Meanwhile, I'm having a tough time figuring-out how any of this improves your and my prosperity and general lot in life.  And maybe make the world a safer place.

Practical Considerations Of Trade Taxes - Updated With New Developments

I've been casting-about for someone; anyone, who can explain to me how the taxation of imported goods will improve your and my prosperity and general lot in life.  If the world becomes a safer place, bonus.  So, if you're reading this and have a simple elucidation that connects the economic dots you know where to find me.  Meanwhile, while the president has promised trillions of dollars of foreign investment in the US I haven't seen anything in particular happening in Wisconsin.  

February of this year Apple announced a $500 billion effort to build a new factory in Texas and expand manufacturing in several other states.  But according to the Wall Street Journal that plan has been in the works since the Biden era.

Pharmaceutical giant - Roche - pledged $50 billion in domestic expansion; then walked-back the pledge following the president's executive order limiting drug prices.  

BMW announced that it was considering additional shifts for US factories.  Honda announced they were considering shifting Ontario production of their popular CRV to Indiana.  Last month, Stellantis commenced a planned retooling of a previously mothballed plant in Illinois; the earliest opening date is the end of 2027.  It takes awhile people.

Sure, the Trump Administration is rather loosey-goosey in claiming credit for stuff that has been in the pipeline for years, conflated or planned changes regardless of tariff policy.  I don't have a problem with that.  Politicians predictably claim credit for unearned stuff all day long.  The reality is that reshoring of manufacturing and assembly operations along with their complex supply lines takes 3 to 6 years to bring to fruition; about the time Trump is preparing to leave office in his Qatari airplane and long after the mid-term elections.  I wish I could be a fly on the wall of America's corporate boardrooms.  Do you suppose I'd be witness to talk about waiting this guy out?  I wonder.

The practical effect of the on-again, off-again, inconsistent tariff and trade policy along with a global trade war has been a freezing of business investment activity.  Last Tuesday I listened to Wisconsin Senator Ron Johnson on the Julie Mason Sirius XM POTUS channel as he shared his misgivings over trade taxes and impacts on Wisconsin business.  Coming from a private-sector guy his musings over business investment grinding to a halt carry some weight.  Business wants and needs predictability and certainty before making outsized investment commitments.  Complicating this are recent retailer announcements of price increases as Trump's taxes erode already slim profit margins.

Some have speculated that a case that heard oral arguments just last week in the US Court of International Trade could end all of this nonsense if this obscure federal court grants small business plaintiffs' request for an emergency injunction upending Trump's policy ambitions.  Who knows where this shall go.  Time will tell. 

So, we'll have to wait this out and see what develops.  We're already half-way into a 90 day pause with many trade taxes already in place and in full force and effect.  What happens after the 90 day pause expires?  

Your guess is as good as mine. 

What I know for sure is that corporate America is taking a long pause to assess the matter and during this period of wait and see not much is happening.  And who can blame them.  Last week the president got up on the wrong side of the bed and in a fit of pique threatened the European Union with a 50% tax on their exports to the US.  And In a new first; he petulantly singled-out  specific companies (Apple and Samsung) with an import tax of 25% if they didn't begin moving their assembly operations to the US before the end of June. This is absolute bananas.  

I predict a summer of interesting economic outcomes.  And maybe a surprise or two*.

Meanwhile, unlike deep pocket Apple and Samsung, small business owners are taking it on the chin.  Beth Benike, an Army vet and owner of the Minnesota based company Busy Baby is just one of the millions of small business owners being impacted by President Trump’s up-and-down, back-and-forth, red light-green light and increasingly petty and impulsive import and curiously personal tax policies. Like I said - bananas.

Small businesses must now contend with the weight of burdensome new costs. “I don’t know how to operate in this new world,” Benike says. Even Trump’s lowered China tariff of “30% is still a lot.” What’s more, she says, “we don’t know what happens after 90 days” when Trump’s pause expires. In this uncertain landscape, Benike asks, “how do you plan anything as a business?”

 

 

*Kentucky Senator Rand Paul had an interesting take on all of this.  In a recent radio interview he scornfully suggested that Trump will ultimately cave and allow an automobile to be classified as "assembled in America" when it's brought here to have the wheels bolted-on.  

 

True Story.

 

Stay-tuned....... 

Edit to add:  Yesterday the US Court of International Trade ruled that Trump does not have the authority to impose sweeping tariffs under 1970s-era emergency legislation.  In fact, the judges said an injunction wasn't enough they issued a summary judgement invalidating and blocking almost all of Trump's trade levies to date.  Of course, the White House announced today they will appeal the judgement so we're back to more chaos.

 

Initial thoughts include the following:  Heretofore, Trump has only cut one deal so far - with the United Kingdom.  How does this complicate ongoing negotiations with anyone else going forward?  Does this offer Trump an off ramp for what many consider an ill-advised and poorly executed trade policy?  If things go sideways on appeal for Trump will SCOTUS agree to hear the case?  What if  SCOTUS does not and allows an adverse Trump ruling stand?

 

Stay-tuned.....