Maybe we can start to have a real conversation about who pays the tariffs and what the impact they will have on the United States economy.
Sadly, conversation no longer means discovering the truth since the serial liar was elected President. The simple truth is that the tax is, as all taxes in the US are, denominated in dollars. That means that they can only be paid by the US side of the equation, ultimately the consumer. We would have no use for the Chinese currency, just as they have no use for our dollars in China.
Trump, and his economics people at the Fed and Treasury, are obviously still living in a gold standard world where some benefit to Americans could be realized by reducing the debt, which is the only effective result of a tariff. Any tax or bond revenue runs into the debt that created the dollars as a first order accounting function and is balanced to zero. While some still see such reduction as a benefit, the jury is still out on that in a fiat currency world.
Logic, if it is allowed to prevail, would tell us that the national debt, an aggregate of private sector gains from the government’s deficit spending, is only a record of the currency in circulation and savings not yet canceled by payment of a federal tax. Reducing this number, while being the holy grail of politicians from both parties, means reducing the money supply that is needed to retire private bank debt or net save as a store of value. A balanced budget is an effective 100% tax rate that steals resources from the private sector to provision the government by leaving nothing in the economy as a store of value (savings) in commerce.
Trump effectively paid for a portion of his tax cut for the wealthiest Americans with his tariffs that will be paid by American consumers who purchase China’s goods. That would be primarily the working middle class. Tariffs add nothing to productivity and only inflate the price of goods produced or reduce the profit of American companies selling the goods. The only punitive effect this might have on China would be a reduction in sales that always accompanies negative price impacts on America’s GDP which will be shared by every segment of the supply chain.
Trump, like most Americans, has a basic misunderstanding of the impact of trade on the economy. The trade itself is neutral because we get goods in exchange for paper that we mostly pull from our backsides on demand. The damage occurs when this misunderstanding prevents compensating workers for their lost jobs that would enable them to remain active in the economy. It makes little difference where goods are made if consumers have the income necessary to purchase them. The federal government could directly employ displaced workers and not suffer inflation from the required money creation as long as someone is providing goods to absorb that spending.
The money created that goes to China bolsters their economy and provides markets for additional goods imported by them, much of which we will realize as exports as US dollars only exist within our reserve banking system. All economics is about resources, not money, and actively trading with our partners only boosts all parties if we have the good sense to use our currency as the no-cost commodity that it is to shape the domestic economy and provide for the common welfare as Congress is mandated to do in the Constitution (Article 1: Section 8).
