Does the administration think its supporters donât understand economics?Â
I would hope not, but some of their policies and proposals make one wonder. On Tuesday, President Trump revived the idea of a $2,000 tariff âdividendâ check. Although the politics make sense, the administration assumes people donât understand basic economic theory. President Trump has painted tariffs as making the American economy more competitive and more productive while simultaneously extracting money from foreigners who pay the Treasury.
If thatâs what were happening, economists would be cheering the tariffs. Unfortunately, President Trumpâs understanding of tariffs is just as faulty as his understanding of how much revenue the tariffs have raised. High tariffs donât make the American economy more competitive. They make it less competitive, because it becomes harder and more costly to build and manufacture. Nor do high tariffs increase production â just the opposite. US manufacturing output has declined over the past year.
And the notion that foreigners bear the burden of paying tariff taxes to the Treasury misses the fact that they turn around and collect more dollars from American businesses and consumers who pay higher prices for imported goods. The great irony of Trumpâs proposal is that he is simply giving people back their own money â the extra $120 they spent on coffee or tea or bananas, or the extra $90 they paid for beef or the extra $100 they paid for clothing or the extra $200 they paid for toys or electronics since âLiberation Day.â
The worst thing about this whole situation is not that Americans have already paid for the tariff checks. Itâs that besides paying for it, they have had to live with a less efficient and less productive economy. At the same time, the US reputation and status on the global stage, when it came to trade, has been greatly diminished. Many of our trading partners have begun looking for more reliable trading partners.Â
Despite a handful of big âcommitmentsâ of foreign investment, largely made to placate or bribe President Trump until he has moved on to the next shiny object, most companies and countries have been making plans to restructure their supply chains and trading arrangements in light of the US being a much less attractive trading partner. Not only that, but the US trade deficit has ballooned during Trumpâs first year.
But back to the topic of tariff checks.Â
Who doesnât want to receive a $2,000 check (or maybe several checks if kids receive them too)? I would certainly appreciate getting one! The problem, though, can be seen in the tagline: âWhen everyone is special, no one is.â Everyone getting more dollars without more production doesnât actually make our country wealthier. Real benefit comes from higher production in the economy.
Millions of Americans were happy to receive COVID-19 stimulus checks. But ask yourself, âWould I want those checks and the subsequent high inflation, or would I have preferred prices to remain low and stable?â Most thoughtful people would say the latter, because the stimulus checks were temporary and quickly spent. The higher prices, however, are here to stay â and our children and grandchildren will have to live with higher prices too.
So letâs not kid ourselves. Trumpâs tariff dividend check idea is a destructive short-run play for popular support. It wonât solve anyoneâs financial problems. It wonât boost employment. And it wonât fix any of the inefficiencies created by his high-tariff regime. If anything, it will stoke inflation and fuel the fire of class warfare since he has proposed that some people get checks and others will not, based on their income. Nor can the executive branch unilaterally send âtariff dividendâ checks to the American people without appropriation from Congress.
If Trump wants to make the American economy great again, he should stop pursuing gimmicks and ad hoc investment commitments. He should replace the current hodgepodge of tariffs with a low, flat rate that doesnât raise the cost of doing business in the US much and still allows an abundant flow of trade across our borders. He might raise more tariff revenue under such a regime.Finally, the administration should redouble its efforts to implement deep institutional reforms â such as streamlining and reducing regulations around nuclear power, mining, drug R&D, and dozens of other industries â that will allow Americans greater scope and opportunity to improve their lives without relying on checks from Washington.
