Please consider an amazing statement by White House Press Secretary Karoline Leavitt.
PolitiFact reports Karoline Leavitt says tariffs are ‘a tax cut.’
When Associated Press reporter Josh Boak asked about tariffs in the White House press briefing March 11, the exchange with White House Press Secretary Karoline Leavitt quickly became testy.
It also produced a sentence that left economists’ heads spinning: “Tariffs are a tax cut for the American people,” Leavitt said.
After Leavitt said that, Boak responded, “I’m sorry, have you ever paid a tariff? Because I have. They don’t get charged on foreign companies. They get charged on the importers.”
Leavitt pushed back, calling his question “insulting.”
We asked the White House to explain Leavitt’s assertion, but its response didn’t directly answer our question.
This story came out a week ago, but I was unaware of it until today.
To make sure it was not out of context, here is a YouYube video.
AP: Trump is proposing tax hikes in the form or tariffs.
Karoline Leavitt: Not true. He’s actually not implementing tax hikes. Tariffs are a tax hike on foreign countries, that again have been ripping us off. Tariffs are a tax cut for the American people. And the President is a staunch advocate for tax cuts.
Mercy. You learn something new every day.
Economists’ Comments
- “The statement that tariffs are a tax cut is nonsensical,” independent libertarian economist Daniel Mitchell told us.
- “I cannot think of any direct way in which a higher tariff is a tax cut,” said Steve Fazzari, an economist at Washington University in St. Louis. “Tariffs are taxes. Higher tariffs are higher taxes.”
- “I simply think there is a fundamental misunderstanding about who pays the tariff that is perpetuated by the White House,” said Ross Burkhart, a Boise State University political scientist who studies international trade. “It is the importing company who imports the goods from the targeted country that pays the tariff and then passes the cost of that tariff down to the consumer, who pays the raised price for the product, and any sales tax associated with that product.”
- “Honestly, it sounds like everything is being put on its head,” said Tara Sinclair, a George Washington University economist. “Economists don’t agree on much, but we agree tariffs are taxes on consumers.”
Tariffs Are a Tax But Who Pays It?
- The consumer
- The importer
- Tariff avoidance
- Strong Dollar Mitigation
Those are the only things that can happen.
Under Trump’s first term it was a combination of 1, 3, and 4, but mostly 3 and 4.
Tariff Avoidance
There was a huge amount of tariff avoidance as goods from China were masked as goods from Vietnam or Mexico.
Trump aims to kill #3 and probably will.
Strong Dollar Mitigation
From 2018 to 2020 the US dollar index rose from 88.25 to 102.99. That’s a 16.7 percent rise.
The US dollar index peaked at 114.78 in 2022 and is now 103.28. If the dollar weakens, there will be no such relief this time.
Importantly, Trump wants a weak dollar and for the Fed to cut interest rates to achieve that. A weak dollar is obviously inflationary.
The Importer Pays the Tax
That’s possible, to an extent. And it’s highly likely Trump pressures businesses to eat the cost.
But that would be a tax on US businesses instead of US consumers.
Many small businesses will be heavily impacted, unable to eat the cost or pass it on. They will go out of business.
For discussion, please see How One Small Business Owner Is Coping With Trump’s Tariffs
Fifty-four percent of small businesses polled said that tariffs would negatively affect their companies, while just 11 percent said they would benefit.
Please read the above post and multiply it by tens of thousands of small businesses.
The Consumer Pays
In the current setup the consumer is the most likely to foot the bill.
However, importers will not be immune. There will also be a loss of jobs, and businesses.
Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget
On March 12, I commented Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget
Lutnick: “We’re going to make the External Revenue Service replace the Internal Revenue Service.”
I ran the math on that ludicrous idea. Team Trump only needs to bring in $7 trillion in tariffs on $3.3 trillion in total imports.
Then we need to faithfully collect 200 percent tariffs on everything with of no trade frictions, no retaliations, and full compliance.
See above link for detailed analysis.
Trump Wants a Weak Dollar But Needs a Strong One
On March 16, I commented Trump Wants a Weak Dollar But Needs a Strong One
Trump wants the Fed to cut interest rates to weaken the dollar and boost exports. But that’s not what helped him get elected.
Trumperland Economics
Welcome to Trumperland economics where tariffs are a tax cut.
Trump simultaneously promotes a strong and weak dollar, and proposes we collect huge tariffs while reducing imports.
We will allegedly balance the budget by running huge deficits while having a Detox recession and not having recession.
In Trumperland, contradictions have no meaning, so this is entirely possible.
No one in the administration is willing to challenge this nonsense.
And in case you missed it, please see Cheese Was a “Key Achievement” of Trump’s USMCA Trade Agreement
Trump is complaining about Canada’s cheese tariffs. In 2018, he was bragging about cheese.
It makes more sense than Keynesian economics.
Keynesian economics has never been implemented. The spending in “bad” times was supposed to be from surpluses in “good” times, not debt. Keynes was also opposed to a single currency being the reserve currency, proposing a “basket’ of currencies at Bretton Woods.
Mish, assuming all of your assertions are true, my readiness to go along with the tariffs is the long term impact of the tariffs. Meaning eventually the stuff we are paying more to import will eventually be made here.
What is the impact on tariffs over a longer time period? Like 10-15 years.
Is it realistic that the tariffs will eventually bring manufacturing back to the USA?
That’s the problem. There are some things that we cannot produce competitively. Such as aluminum.
And there are some things that we cannot produce enough of; such as more heavy oil that our refineries need. Or the potash that our farmers need. We simply don’t have it.
If you want to bring back more manufacturing, putting tariffs on the inputs that our companies must import, is not the way to do it.
You think Millennial and Gen Z’s are going to work in factories? Doubt it!
They have a secret handshake and everything
Illustrative of the “thinking” of the current regime.
Imports & exports are confusing, because imports to the USA are imports from foreign countries; it’s easy to get the direction reversed, and I think that fuels the misconceptions. It’s like right ahead. Always confusing whether you mean straight ahead or take a right ahead.
That said, it’s all lala land.
The terrible import tariffs that Canada charges (actually paid, not theoretical) are in fact less than those charged by the Americans. And the total amounts to less than a gnat on an elephant in proportion to bilateral trade volumes.
What on earth is Trump getting excited about?
My take is the plan is to cut other taxes, they just haven’t gotten to that part yet.
lol, Will believe it when my wallet feels it.
Leavitt held up her left hand towards Winston, with the word ’tariff’.
‘Am I showing a tax or a tax cut, Winston?’
‘A tax.’
‘And if the party says that tariffs are not a tax but a tax cut — then which?’
‘A tax.’
The word ended in a gasp of pain.
Tariffs in today’s world of global choices means consumers can choose the cheapest most viable option, this puts producers and importers and final destination distributors at risk of squeezed margins. In today’s economy the general consumer will find alternatives to higher priced items, thus the prior groups margins must shrink because they will not be able to pass of the higher costs to the consumer. Consumers are more informed and will find alternatives. I agree with the premise that tariffs are a tax on foreign goods, in the simple form that they will have to compete with what should be an equivalent and equal domestic producer. Problem is finding an equivalent domestic producer of similar quality…well that will take some time! This is an adjustment period for sure.
So we are going to raise taxes on those who spend every cent on things (the poor) and give more tax breaks on the wealthy who don’t.
You keep avoiding the issue that tariffs are a tax. The importers, many small businesses, and consumers will pay that tax for the benefit of larger corporations who may find some loophole.
Then again, auto manufacturers will take a hit. But hooray for the steel workers.
Admit it. This is flat out stupid.
Tariffs cannot be a direct tax, because I the consumer can choose to find alternatives. If the question is economies of scale, well then that is an anti trust issue not a tax issue, Amazon destroyed the idea of trusts long ago, the US political system is a pay to play system, so these are two different forces you speak of Tariffs as a Tax and economic benefit of large corps vs small. The goal should be local producers which focus on local supply chain dynamics and promote local business. The US has strayed from this and now looks to enact exogenous forces to rectify an imbalance that sits square on the shoulders of a monetarist regime that prints digital credits at a rate of 9.8% annualized for the last 30 years. The root of all problems is embedded within that data. Western Capitalism has been hijacked by monetarist financial alchemy and has strayed very far from organic supply/demand economic forces.
“Tariffs cannot be a direct tax, because I the consumer can choose to find alternatives”
So if they put a tariff on imported electricity, you will choose to buy your electricity from?
Add a tariff to imported oil that US refiners buy, and prices go up at all gas stations. What is your alternative?
And when the price of the auto you want to buy increases by $10,000 because of tariffs, you will just buy one directly from China. Right?
Or maybe your alternative will be a horse.
Had to cancel my shower installation because Trumps tariffs made Home Depot increase the price of the unit they were importing by 25%… that’s out of my pocket!
Domestic mfgs can raise prices to fatten profit margins while the end customer takes it up the tail pipe regardless of what they buy.
This is an economic site is it not? So if tariffs are introduced what are the “incentives”?
It seems to me everyone is assuming (there’s that word again) that business will continue as usual. Surely things will not stay the same, and people and companies will not just suck up the increases/losses?
How does the “game” change with the tariffs?
A simple increase in a tariff will not map to a known increase in money collected. Could be less money is collected to the extreme of zero money collected. Lots of room for serious error here.
Agreed, definitely not a map to a definitive increase in money collected. But if done correctly could it increase money collected? Of course it could. Is it a map to a definitive increase to the cost of goods? Again, No, but it could be.
My point is tariffs will change the incentives for the producers, the shippers, the traders, and the buyers, none of which was considered in this article.
The White House knows exactly that it’s Americans who are paying the tariffs. The strategy is to flood the narrative zone with complete nonsense, allowing people to be outraged, amused, or at least entertained, while Trump and his Project 2025 disciples systematically dismantle the rule of law and the Constitution.
The medical system has been violating anti trust law for how long now? Denninger has noted that the court has ruled twice on this and has been ignored.
We haven’t had rule of law for some time now.
Please explain in more detail.
She ought to be fired for incompetence.
Her job description is lying, disassembling and distracting… she’s doing great!
In a Trump administration, you only get fired if you are competent.
Foolish statements that fools will take as gospel. Watch them defend her nonsense.
🍿
The US imports a LOT of commodities such as oil, natgas, electricity, uranium, potash, steel, aluminum, lumber, etc. We then use these commodities to produce higher value finished goods, some of which we export.
The tariffs on these imported commodities, are paid by the importing US company, not the producing company. The producing company cannot lower their price to compensate, as they have no control over the commodity price. The marketplace determines the price.
So US manufacturers end up with higher input costs, making them less competitive internationally. On top of that, if other countries place retaliatory tariffs on the finished products that these US companies hope to export, that further reduces their competitiveness and their exports will collapse.
It’s useless to keep explaining to the MAGA crowd that 1 + 1 = 2. Maybe there is a reason why they hate the Education Department.
Mish, I enjoy your stuff and I appreciate your putting it up. Thank you! However respectfully, you’ve put your “orange man bad” goggles back on. The ones you wore in the Trump 1.0 era. It’s evident in this piece and others. Particularly when it comes to interpretations of law. The guy’s not perfect and there’s going to be pain, but our expanding national debt is an existential crisis. Tariff’s are a tool in the “Mar a Lago Accord” toolbox. With the other party offering zilch for a solution, Trump’s austerity and cost shifting is all we’ve got. That’s the political reality today.
Continue to opine on bad policy/bad outcomes. Criticism is fair. Just include your solution. However, lose the TDS that creeps out with that. The President is facing huge institutional, special-interest and MSM propaganda challenges. Don’t become part of that crowd.
I
Tariffs are tax cuts…uh, yeaaahhhhh, suuuuure. A true inversion of reality but I guess press secretaries, partisans of all stripes, much like stockbrokers, “Talk Their Book”.
War is peace, freedom is slavery, you know the drill…
Welcome to hillbilly government. This is what happens when yokels get put in charge of government. A few of us here warned about it before the election and here we are but just wait for the real train wreck to bring the economy down.
Here’s what will happen:
The pattern is clear and consistent for 40+ years now. Now just wait for the pandemic so we can all inject disinfectant to cure our ills. Maybe a good leeching or blood letting to top it off.
Both parties have trashed the country’s economic stability raising debt to an unsustainable level and imposing strangling regulations, both parties will not do anything to meaningfully address the problems. Last election we had a choice between two really bad candidates. My take is American voters chose correctly as a Kamala administration would not have been better, but that is not saying Trump does not have his faults
kamala lost, you can’t blame her anymore.
“Democrats spend 4 or 8 years stabilizing the economy…”
That is an interesting fiction. Roosevelt had a recession in the middle of a great depression.
I said 40 years, funny how you had to go back to 1930’s to make a point.
Can’t expect these buffoons to apply arithmetic.
one of the greatest stock rallies of all time occurred in the middle of the great depression. then the other shoe dropped.
If I were to guess she is trying to claim that tariffs will replace income taxes therefore they are a tax cut. Gibberish, but it aligns.
– And it’s highly likely Trump pressures businesses to eat the cost.
> This may be the Plan and it would be effective, but cause a stir amongst Unions, if I am right in what He may try to do.
– But that would be a tax on US businesses instead of US consumers.
> This is definitely the plan I think. Based on what Trump and His Administration is attempting to do (Tariffs).
– Many small businesses will be heavily impacted, unable to eat the cost or pass it on. They will go out of business.
> Exactly why it can’t be done like everyone has been clamoring about.
My Thoughts: I think Trump wants to level the playing field, so to speak. His goal is to bring all jobs closer to being able to afford certain things, and that’s not the way it is at the moment. What is different, that could be changed, and needs to be anyway IMO. Government Jobs (include ALL Benefits) & Unions, and “Especially Public Ones (think Teachers, Feds)”
So what is unique about both of them, that don’t apply to nearly ALL the other Jobs in “Our Country” They are Protected by the Taxpayers Wallets & Pocketbooks. They get Medical, Dental and Health Benefits the Private sector can only “Dream About” in most cases. They have “Much Higher Pay” than the Private sector can only “Dream About” There are so many examples where they are protected (paid while on strike or shutdown), So go try that at your job and see what happens. They have “Longterm” Contracts on their side, so they can qualify for loans (Homes) the Private sector can’t do in most cases. They have the Feds on their side. Go try to beat them. They have A Massive Amount of past and present Union Members (A Base) that adds a lot of Power to keep things up.
I come from a longtime Union Family and Military Family, and I love America and All Workers. This is a question of “Fairness” so we all can have a chance. This also separates them from the rest of the working class. Talk about boxes! JS …
In Jan NVDA took the markets down. Yesterday was NVDA vs DeepShi super bowl,
NVDA AI might replace Wolf.
Tariffs are protection for an industry home from foreign competition. Tariffs reduce trade. Very high tariffs block trade altogether and zero dollars get collected. The payment is taken from the importers trust account at the customs broker before the goods are released (in Canada). Sure they put money in goverment coffers, but tariffs proper function is for trade and assigning a dual mandate with tax needs will make it so neither works properly.
Obviously, if you put 200 percent tariffs on European wines, you are going to collect exactly zero tariff revenues on European wines. The idea here seems to be to destroy the American wine intermediation businesses. Funnily enough, Trump himself owns a winery that will probably go down the drain as well.
Coincidentally, the wine (liquor business in general) is doomed as Gen Z does not consume alcohol. Tariffs will accelerate alcohol’s demise. History will judge the overall benefits/harm to society.
That’s the hope of prohibitionists at least since Noah’s time. Muslims seem to be the only ones who got the idea.
Pretty simple really. The more tariffs are paid into the Treasury, other things being equal, leaves money available to cut income taxes because money is fungible, if the political will is there.
The problem with tariffs is that other countries will reciprocate and economic activity will be lower than it would be without tax cuts.
If taxes were to be converted to cuts of equivalent amounts in income taxes, the average US citizen might not be better off after paying higher prices for imported goods and because of the downturn in total economic activity.
So we are going to raise taxes on those who spend every cent on things (the poor) and give more tax breaks on the wealthy who don’t.
You keep avoiding the issue that tariffs are a tax. The importers, many small businesses, and consumers will pay that tax for the benefit of larger corporations who may find some loophole.
Then again, auto manufacturers will take a hit. But hooray for the steel workers.
Admit it. This is flat out stupid.
I think it was Mitt Romney who claimed that bottom 47% of American adults don’t make enough money to pay Federal income tax.
Why is this surprising? This is what politicians do. Their entire existance is putting lipstick on filthy pigs.
Hello Mish, could you please have look at Vance’s Tuesday speech in DC and make some comments? To me it looks more as hastily stitched Perestoika than industrial policy blue print. Trade unions are big problem, not a single word. Public education is problem, not a word. Infrastructure is problem, not a single word. Huge federal budget misdirects labor and capital for decades to unproductive areas, not a single word. Let’s scrap environmental regaulations. More tariffs. Less taxes for companies investing in USA. Monopolizing AI – too late Chinese are giving it almost for free to the whole world.
That’s politician’s mouth.
If you can’t tell the white color black you’re not politician.
Never admit your fault. Put blame on opponent.
I swear I think most people still think tariffs are paid by the foreigners! Trump always slants it that way and for I know he may think the same!
Most people don’t know what the word tariff even means.
One does not have to pass a civics test in order to vote in this country unless you are a naturalized American.
How do we know the USA won’t just start producing the items with high tariffs? So no taxes, but probably higher production costs, if that’s the case. But isn’t that the issue? Other governments allow policies that keep their production costs lower than the USA. It ranges from subsidies to slave labor. Even so, if the markets are saturated, I’m not sure the USA producing more helps anything.
Also, at least theoretically, the USA should be able to use the latest tech to keep things as clean as possible, instead of exporting all the hazards and pollution of production.
Practically, I’m doubtful, but maybe I’ll be surprised. Mish just wants us to keep doing what we have been doing, I guess. Like it’s working great? Like it makes sense that we don’t try to improve our economy or jobs or financial situation, just everybody else’s?
So we just continue the giant trade deficits? It’s not all accidental, much is intentional and created by government policies!
we need Trump to do 5 year plans. he can organize our economy like chairman mao did. the great leap forward………what could go wrong. have backyard pig iron smelters and starve to death ?
Highly skilled workers and wall street will benefit. The poor and the elderly will struggle.
Any typical consumer paying attention (through the usual media megaphones) will see this disappear in a puff of smoke when prices rise. But the consumers believing Great Leader aren’t keenly tracking for facts and consistency anyway (except what-about-ism to support the current moment’s rant). It is all the great dream in the sky, now receding (along with Ukraine solutions, inflation receding, every other secret plan or Day One pledge). It is a pump and dump.
A Tarrif Rebate/Cost Reduction policy at point of onshoring would fix things, but tarrifs are just an unnecessary stupidity. Double the potential purchasing power with a 50% Discount/Rebate at retail sale and you’d see much more production returning to the USA and a dispelling of depressing effects of long term loss of individual purchasing power. Neither Trump nor the dems are smart enough to do that, and the smart fool libertarians cannot grok it either. Meanwhile we slouch toward Bethlehem when a solution to our decline is simply strategically applying double entry bookkeeping.
I’ve heard the MSM arguing that tariffs are inflationary AND lowering taxes are inflationary. — Because everything happens in a vacuum both of these must be true.
This makes as much sense as those arguments.
tariffs are inflationary because it constrains imports. Same as logistics inflation. taxing income directly directly is deflationary because less money to spend. Where you apply the tax matters. you need to be able to hold more than one bumper sticker slogan in your brain for more than 2 seconds to understand this. which is more than most people are capable, apparently
The spokesgirl was talking rubbish.
That’s what they hired her to do.
Hypothetically, if tariffs were reciprocal (and/or lowered over all) wouldn’t the US export AND import MORE goods? If so, would that increase production / more jobs in the US if we were exporting more? If other countries do NOT reciprocate ( or lower tariffs) then they may lose out on business in the US. I do not know off hand how many imported goods purchased by the US are “necessities” vs “wants’ but that would be to know. US does hold the cards in this game. If in the end the US produces more goods at home, that’s a win too……I’m OK with tipping the scale in favor of the US to see what happens.
Tariffs reciprocity is not universal. Trading with the US is not the universe of international trade. Other countries will become more competitive than the US and find new markets for their wares.
The 20% tariff will be paid by the foreign companies because they’ll discount their prices by 10% and they’ll depreciate their currency by 10%. And there you go – your taxes will be cut because the US gov won’t need to get that money from you. It’s really quite simple…
Google Walmart China tariffs
citations needed
… and everyone will get a pony!
Sadly, that’s what too many Americans want to hear. Lies, lies, and lies. Whatever it takes to own the other side.
Welcome to MAGAnomics!
Here is a logic to make it work.
1. The delivered price is fixed, i.e determined by competitive market forces.
2. Therefore the exporter must absorb the cost of the tariff.
3. Therefore the extra revenue to the government can be used to reduce some other tax.
I can not think of any products where these assumptions are correct, but perhaps there are some.
Doesn’t work.
Of course it’ll work. All prices are negotiated and sellers don’t want to lose customers. No prices are fixed….
you don’t think the likes of walmart and other big importers havent already negotiated prices to the bone? It’s really silly to think that they could go back now and ask all of their suppliers to take a 20% haircut out of the blue. Walmart has absolutely zero loyalty to their suppliers. I doubt many suppliers going to run at a loss just to keep the likes of walmart happy.
Makes about as much “sense” as modern monetary theory.