President Trump’s tariffs and trade wars play a critical role in his reelection schema. Having largely thrown in with conventional GOP plutocracy — most notably with the massive 2017 corporate tax cuts — Trump’s moves on trade are the political life support that keeps alive the faint-pulsed aura of economic populism he concocted in 2016, largely betrayed in office, and hopes to duplicate in 2020.
So it could not be more fitting that two new studies are now showing that Trump’s trade policies could wipe out the gains that Trump’s tax cut delivered to the non-wealthy — gains that were meager to begin with, relatively speaking, and could now disappear entirely.
The overlapping of these two stories — the damage caused by Trump’s trade wars bleeding into an undermining of the tax cut’s minuscule low-end benefits — provides a new occasion to revisit the failures and fraudulence of the superstructure of policies and priorities often described as “Trumpism.”
The new studies come to us courtesy of Jim Tankersley of the New York Times, who reports that both the Tax Foundation and the Penn Wharton Budget Model have concluded that Trump’s tariffs amount to a significant tax increase, by raising consumer goods.
As Tankersley reports, if Trump goes forward with his planned tariffs on Mexico, along with the other ones he has threatened toward China and on automobiles, the studies conclude that it “would wipe out all or most of the benefits his 2017 tax cuts delivered to low- and middle-income Americans." Here’s the Tax Foundation’s conclusion:
Accounting for both the tax cuts and the full range of tariffs, the Tax Foundation estimates, the lowest-earning fifth of American taxpayers would see an effective tax increase of 1.1 percent of their income this year. Those in the middle fifth would see a 0.3 percent tax increase. Upper-middle-class earners would have their gains from tax cuts wiped out. Only the top 5 percent of earners would continue to see a net tax cut of more than 1 percent on the year.
Even in their current form, Tankersley reports, the tariffs “already amount to a significant tax increase on Americans.” On top of that, the “damage is concentrated, as a percent of income, at the lowest rungs of American income earners, who spend a larger share of their salaries on imports than the upper middle class and the rich.”
Trump tax cuts have minimal effect
It’s important to read this alongside another finding that exploded in Trump’s face last week: the conclusion by the nonpartisan Congressional Research Service that the effects of the Trump/GOP tax cuts on economic growth and wages were minimal at best.
This blew up a central rationale for the tax cuts: the claim that they would unshackle an explosion of investment that would cause wages to soar, ensuring that the tax cuts paid for themselves. The Congressional Research Service found that none of this is meaningfully happening, and the deficit has soared.
A blow to Trumponomics
Taken all together, this should deliver a crippling blow to the underpinnings of Trumpian economics. Boiled down, Trumponomics represents a kind of weird fusion between impulsive, xenophobic lurches toward economic nationalism in some areas, and conventional regressive plutocratic GOP policies in others.
Once Trump abandoned his populist campaign promise to target economic elites at home — and instead embraced the GOP tax cuts while going all-in with a failed GOP effort to roll back the safety net — that left behind trade and immigration as the only areas where he retained any residue of his 2016 “populist economic nationalism.”
Trump’s story about this resulting combination is that the massive corporate tax cuts are showering workers with rising wages fueled by boosted corporate investment, while his trade and immigration policies are protecting them from trade deals in which foreign countries (mainly China) are ripping them off and from economic competition from low-wage immigrant workers.
But it turns out that the tax cuts aren’t delivering big benefits to ordinary Americans. Whatever benefits they did confer are endangered by the real-world impact of his tariffs and trade wars.
Meanwhile, on immigration, he has lost the “control” he vowed to exercise over the border. This is largely because Trump’s whole worldview — which treats migrations as little more than efforts by migrants and their home countries to “rip us off,” the story he has told for years — is completely unsuited to the complex challenges these migrations actually pose.
All this comes together in Trump’s tariff threat against Mexico, which isn’t about trade, but rather about forcing Mexico to block migrations that his own policies failed to deter. It’s important to stress that even if Mexico does do more on immigration in response to these threats, it’s unlikely to put a serious dent in the larger asylum-seeking crisis.
That crisis is driven by much larger forces than a mere failure by Mexico to do its part, ones that are crying out for precisely the sort of international solutions that Trump’s worldview disdains and is currently undermining.
If Trump goes through with those tariffs, it will further wipe out the gains of the tax cuts. Even if he does not, the trade wars are already taking their toll, not just on those gains, but even among the very constituencies he won over back when his trade promises had not yet collided with reality.
Trump still may well retain an advantage on the economy if — if — it remains good. But it’s also plausible that the unpopularity of all these strands of Trumponomics — the trade wars, the immigration cruelties, the tax cuts — will come together to persuade voters that the economy is good in spite of all the spectacular failures of “America First” Trumpism, and that they can have the former without the latter.