Trump defends and explains tariffs using dubious claims
WASHINGTON — He’s been contradicted by one of his top advisers, dinged in regular fact checks and called out by top economists. Still, President Donald Trump has held firm to dubious declarations about trade policy, raising questions among experts and even his allies about whether he either can’t — or won’t — grasp the fundamentals of the issue.
This week Trump has misstated how the tariffs are paid, who pays them and the significance and size of the trade deficit.
Trump’s views on tariffs depart from conventional economics in at least three ways: He has repeatedly claimed that the Chinese — not Americans — are paying the 25% tariff he has imposed on $250 billion of Chinese imports. He has described the trade deficits that the United States runs with other individual countries as total economic losses. And he argues that the U.S. trade deficit with all other countries combined is a result of bad trade policy.
On all three questions, trade experts fundamentally disagree.
It is U.S. companies that import — retailers, wholesalers and manufacturers — that pay the duties that Trump has imposed, not Chinese companies. One of Trump’s top economic advisers, Larry Kudlow, admitted as much in a television interview Sunday.
But Trump tweeted Monday: “Tariffs are NOW being paid to the United States by China of 25% on 250 Billion Dollars worth of goods & products. These massive payments go directly to the Treasury of the U.S.”
That’s simply not true. Studies released in March found that nearly the entire cost of the import taxes is falling on U.S. consumers and businesses. One of the studies, by economists at UCLA and the World Bank, found that U.S. firms and shoppers lost $68.8 billion last year because of higher tariffs.
There has long been division within the West Wing about tariffs’ effectiveness. Trump has often sided with China hawk Peter Navarro, who argues that tariffs work. But Gary Cohn, the former director of the National Economic Council, argued strenuously against them, saying tariffs harm the economy.
“I was losing the war on tariffs every day with the president. I knew I wasn’t convincing him I was right,” Cohn told the “Freakonomics” podcast in March. “I was not going to take a 74-year-old man who’s believed something since he was 30 and convince him that I was right.”
Economists also dispute Trump’s portrayal of the U.S. trade deficit with China, which reached $378.7 billion last year, as evidence that Beijing is “ripping off” the United States. Mary Lovely, an economics professor at Syracuse University, says Trump is ignoring a simple point: The U.S. obtained goods and services for that money.
“It’s like going to Walmart and you giving them money and they’re giving you goods,” she said. “There’s an exchange.”
Trade experts typically consider one nation’s trade deficit with another as economically irrelevant. The United States also has a trade deficit with all other countries in the world combined, which reached $622.1 billion last year. Most economists aren’t very concerned about that as long as so many nations are willing to finance that deficit by purchasing U.S. Treasury bonds and other assets.
Trump blames the overall deficit on bad trade deals but that’s not really the cause. A country runs a trade deficit when, like the United States, it consumes more than it produces.
“We run deficits because we’re a wealthy country that can buy things that it doesn’t produce,” said Joe Brusuelas, chief economist at RSM, a tax consulting firm. “Trade deficits fundamentally don’t matter.”