Investigating Trump's Claim of Using Tariffs to Pay Down $21 Trillion in Debt

Trump said that trade wars are good and easy to win. He also proposed using tariffs to pay down debt. Let's investigate.

Let's compare that Fantasyland projecting with some hard data.

The Council on Foreign Relations reports 115 Percent of Trump’s China Tariff Revenue Goes to Paying Off Angry Farmers.

“Billions of Dollars are pouring into the coffers of the U.S.A.,” tweeted President Trump last month, “because of the Tariffs being charged to China.”

It would be nice if it were true. But it is, in fact, doubly false.

First, tariffs are not “being charged to China.” They are being charged to American firms importing Chinese goods. As the left-hand bar in the graphic above shows, such firms will pay about $8.4 billion in tariffs on China imports by the end of 2018.

Second, this tariff revenue does not remain in U.S. government “coffers.” As shown in the right-hand bar above, all of it and more is being paid out to American farmers as partial compensation for their losses from Chinese tariff retaliation. The U.S. government has already committed to paying out $1.2 billion more to angry American farmers than it will take in this year from angry American firms.

By launching a trade war with China, therefore, the president has simultaneously raised taxes on U.S. companies and lost the government money. And with the farm constituency critical to his 2020 re-election hopes, the losses are only set to mount going forward.

Tariff Man

Things We Know

  1. Trump is "Tariff Man".
  2. President Trump and Treasury Secretary Mnuchin are Totally Clueless About How Markets Function
  3. Trump does not understand basic math nor concepts like "large amounts". Paying down $21 trillion of debt via tariffs collected at $8 billion per year would take 2,625 years.

Point three presumes that the Treasury actually collected $8 billion in tariffs. The article shows that tariffs on Chinese goods cost $1.2 billion due to farm subsidies.

The administration's plan to a Convene Plunge Protection Team (PPT) is icing on the clueless cake.

Mike "Mish" Shedlock

Comments (16)
No. 1-9
hmk
hmk

How much of the soybean subsidies are a result of over production of soy beans and thus lower prices. If the Chinese are buying soybeans from South America instead why wouldn't US soybeans go to their customers instead? The supply /demand equation is normally pretty close so something here doesn't make sense.

2banana
2banana

Refreshing that a President actually thinks about reducing the debt.

First time in about 40 years...by my estimate.

Sechel
Sechel

You left one fact out. The level of taxes has an impact on GDP and by extension tariffs would be the same. So even assuming Trump's argument is correct, which it is not, the higher the tariff the less would be purchased of the good or service and the lower economic output would be as well.

Trump's hubris is astounding. He's so convinced he's right and worse he's not even interested in examining his beliefs. Trump clearly has a closed mind and nothing could be more dangerous.

And I agree with you China is not paying the tariffs, the end user is. I've had the same argument about tax abatements and the mortgage interest deduction. in the former the developer gets the benefit not the buyer and the seller obtains the benefit of the latter as well. nobody gets this

Cecil1
Cecil1

While its true that tariffs are mainly a tax on the buyer, in practice this is not 100% so.

Its a balance between the need for the exporter (China) to have US sales and the ability of the buyer to pay. If China desperately needs those sales, they may reduce their price some of all to mitigate the effect of the tariff. End result, most of tariff gets paid by Chinese exporter.

Obviously results may vary, but there is nuance to tariffs.

thimk
thimk

so net,net,net - this was a exercise in futility.