Donald the Taxman Strikes at Midnight

The waiting is over, Donald Trump has hit America’s workers with the largest tax increase they have ever seen. Trump’s taxes on imports (tariffs) from Canada, Mexico, and China will cost people in the United States somewhere around $400 billion a year or around $3,000 a household.

This is far larger than any tax increase we’ve seen in the last half-century, and unlike tax increases put in place by Clinton and Obama, it will primarily hit low and middle-income households. Their tax increases primarily hit the top 1% percent, which is probably why they got so much more attention from the media.

It is not clear what our reality TV show president hopes to accomplish with these tax hikes. His stated reasons don’t make much sense. Canada, Mexico, and China are already cooperating with the U.S. on the issues he is complaining about. There is a minimal flow of fentanyl and undocumented immigrants from Canada.

Mexico sharply curtailed the flow of undocumented immigrants following a deal with Biden last summer. We can look to reduce the flow further, but that could probably be accomplished by negotiations rather than imposing a big tax on U.S. households.

China has also cooperated in reducing the flow of precursor substances for making fentanyl. Here also there were probably better prospects for further reductions through a path of negotiations rather than Donald Trump’s big tax increases.

Also, unlike Canada and Mexico, China’s economy is not that dependent on its trade with the U.S. China’s exports to the U.S. come to less than 2.5 percent of its GDP. If Donald Trump’s taxes reduce that by half, it could look to export to other countries (like Canada or Mexico) or increase domestic demand.

It seems implausible that Donald Trump’s stated reasons for his tax increase are his actual reasons. In principle, taxes on imports can be used as part of an industrial strategy to build up key industries, as was explicitly the case under Biden. His tariffs were intended to promote the advanced semi-conductor industry, as well as solar and wind energy and electric cars.

However, it would be difficult to find any evidence of an industrial strategy in Trump’s plans. He actually is deliberately sabotaging the industries Biden sought to foster.

There is an old saying in Washington that if you want to understand politicians, look at what they do, not what they say. On that front there is no ambiguity. Donald Trump is imposing big new taxes, and he is doing it in a way that does not require congressional approval.

He has made no secret of his intention to cut taxes on the wealthy. While Elon Musk and DOGE boys have put on a good show with the chain saw and breaking into various government agencies, the savings they can actually identify don’t amount to much.

If Trump can’t find major savings in the budget, then he will have to raise other taxes if he doesn’t want to hugely increase the deficit with his tax cuts for the Elon Musk crowd. This is the most obvious explanation for Trump hitting us with his huge import taxes. It sounds much better to pretend he’s cracking down on fentanyl and illegal immigration than to say he’s whacking ordinary workers with a big tax increase. But that is what Donald Trump is doing.

This first appeared on Dean Baker’s Beat the Press blog.