If you’ve ever watched a game of three-card monte, you’ve noticed that the dealer talks nonstop. The chatter serves two functions. First, it distracts the victims. Second, and maybe more important, the dealer is deceiving his victims about what’s befalling them. The spiel invites them to imagine they’re playing a game in which they stand a fair chance. In reality, they are being swindled.
The Trump White House’s press releases about its so-called trade agreements and negotiations—first with the United Kingdom, now with China—are just so much dealer patter.
The tariff numbers go up. Up and up and up. Oooh, now they come down. Up! Down! And all the while, everybody involved is telling contradictory stories about what’s being done and why.
The noise is made even more confusing by the journalists trying to explain the game.
In the street-corner version of three-card monte, the dealer is typically assisted by confederates in the crowd. These confederates help the dealer misdirect the suckers and elbow out of the way anybody who seems wise to the hustle. Pro-Trump media play that same role in the tariff debate.
Meanwhile, the respectable financial media, which actually possess deep expertise on tariffs and trade, struggle as much as anybody else to interpret the seeming chaos. They perceive that the show being performed in no way resembles the negotiations that produced trade agreements in the past. But their own habits and rules forbid them from drawing the correct critical conclusions from the crazy discrepancy they observe.
Turn off the sound. Ignore the cards. Watch the players. And suddenly, things come into focus.
A tariff is a tax, but a tax that differs from other taxes in three important ways.
First, a tariff is a tax that can be imposed by the president acting unilaterally. The normal constitutional rule is that only Congress can impose taxes. With tariffs, however, Congress has delegated much of its authority to the president. Theoretically, this deference is for emergency purposes, but because the president has the sole power to determine whether a trade emergency prevails, tariffs provide a means of raising revenue that he can impose all on his own.
Second, a tariff is a tax that the president can waive unilaterally. A president could never, say, exempt a company from corporate income tax on the condition that the company donate to the president’s inauguration committee; nor can he forgive a taxpayer’s obligation to pay capital-gains tax if that taxpayer buys the first lady’s lifetime rights for a documentary that never gets made. But a president can create tariff exemptions in those ways and for those reasons.
Third, a tariff is a uniquely regressive tax, one that falls most heavily on the least affluent people in society. Imagine a low-income family eating a meal at home. The table is tariffed, the chairs are tariffed, the plates are tariffed, the knives and forks are tariffed, the Canadian wheat in the pasta is tariffed. Now imagine a wealthy family eating a meal in a restaurant. Their tables, chairs, and so on might be tariffed too. But the most important costs in their restaurant meal are the wages of the chef and the servers, the rent the restaurant pays to occupy its premises, and other overheads. Those costs are not tariffed. Basically, the more of your income you spend on services, the less you pay in tariffs. Income that is saved and invested pays no tariff at all, so the richer you are, the more of your income you can save and invest.
The working man’s car is tariffed. The rich man’s chauffeur is not tariffed.
The poor girl’s dolls are tariffed. The nanny hired to play dolls with the rich girl is not tariffed.
Towels are tariffed. Membership fees at the sports club are not.
The doorknob is tariffed. The butler who stands by to open the door is not.
The Trump administration and its allies in Congress are aiming to pass a big tax cut. That tax cut may be decorated with a few symbolic concessions to low-wage workers. Most of its benefit, however, will accrue to the very richest people in U.S. society. Meanwhile, the Trump administration has radically reduced tax enforcement upon the very rich by laying off one-third of the auditors for the IRS. Altogether, Trump’s fiscal plans imply a huge increase in the U.S. government’s deficit and a dramatic surge in federal debt.
An administration that genuinely cared about the trade deficit would flinch from these fiscal plans. Economists generally agree that fiscal deficits drive trade deficits. To simplify a complex relationship: The United States borrows in dollars. Lenders buy dollars to lend to the United States. All of those lenders buying at once push up the value of the dollar. With the dollar more valuable, U.S. imports seem cheaper and U.S. exports become more expensive. So the U.S. imports more and exports less. If the goal were genuinely to import less and export more, the Trump administration would stop futzing around with tariffs and would instead balance the federal budget.
If. But if the goal is to redistribute the cost of government from the richest to poorest, while enormously augmenting the president’s personal power to the detriment of Congress, then the Trump plans make a lot more sense.
All of this hullabaloo about nonsense deals with Britain and China serves to distract from the brute reality of the Trump and MAGA trade agenda.
There are no real deals. Tariffs on U.S. imports from Britain and China, and the ensuing retaliatory tariffs on U.S. exports to Britain and China, are all higher than they were the day before Trump’s inauguration. Nothing has been achieved to promote trade, and indeed nothing has truly been tried, because trade promotion is not the goal.
Fiscal redistribution from poor to rich: That is the goal. This goal is advancing.
Maximization of the president’s power—to punish enemies and sell favors—is also the goal. This goal is advancing even more successfully.
The six weeks since Trump’s “Liberation Day,” on April 2, have seen some of the most extreme financial volatility since the global financial crisis of 2008–09. Back then, markets were tossed around by objective financial realities. This time, they are convulsed by one man’s whims. Reporting strongly suggests that some market participants had advance access to that man’s whims, and scored hundreds of billions of dollars of speculative profits from knowing when to buy and when to sell.
Nonspeculators have also bought and sold influence. CEOs who Trump thinks are “nice” gain extra consideration for their companies: See the way Apple secured a special exemption for iPhone sales. But small businesses that lack the resources and contacts to win Trump’s favor are crushed and ruined.
Meanwhile, the deal patter of jingoistic rhetoric and confusing promises is deployed to conceal the real mechanics of plunder and profit. The only people who say otherwise are the hustlers and their touts. The only people who believe otherwise are the marks.
The post The Trump Trade-War Scam appeared first on The Atlantic.
