Chicken Feed

The world’s best-selling light pick up truck, the Toyota Hilux, is prohibitively expensive to import into the United States because of a 25% ‘Chicken Tax’ from the 1960s. Source: Getty Images

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How’s the trade war going? Short answer: as badly as expected.

Last week, we saw how capricious tariffs showed the rest of the world that the US cannot be trusted. In the news on Friday was this from CNN:

Trump’s trade war is pushing Canada closer to China

Team Trump imposed…backtracked…exempted…and upped tariffs to 10%…25%…35% and 50% on Canadian goods. Were they levied to stop drugs? To stop competition? To prevent immigrants from slipping across the border…or just because POTUS didn’t like Canada quoting Ronald Reagan? No one knew for sure…but Canada got the message. Now it looks for a more reliable trading partner.

On China, the US imposed tariff taxes as high as 145%, before backing down. This caused the Chinese to diversify their trade among other foreign markets, leading to its biggest trade surplus ever — over $1 trillion. Asia Times:

China’s trade surplus hits $1 trillion for first time ever

The biggest single contributor to the Chinese success was automobiles, electric ones. China overtook Japan as the world’s leading car exporter only two years ago, despite the fact that the largest car market in the world (the US) was effectively off-limits. This year it has a $66 billion trade surplus in the automotive sector.

But in autos, as in so many other things, Donald Trump did not invent America’s dumbbell policies. Joe Biden inherited Trump’s tariffs left over from his first time in the Oval Office. Rather than toss them out, he increased them on China’s EVs — to 100%. This left China to focus on the rest of the world…while the US stewed in its own internal combustion juices.

That single move — effectively banning Chinese EVs — cost American drivers, so far, about $20 billion, by our estimate. The average EV in the US sells for over $50,000. China’s EVs in Europe average only 25,000 euros.

By protecting markets from competition, the feds are condemning US producers to inferior output at excessive prices. The rule is simple: the greater the protection, the less competitive the producers become.

When Trump began his tariff wars, importers were paying an average of about 2.5% in tariffs. This went up to 20% or so by July, bringing the US treasury more than $30 billion per month in revenues. That money comes initially from the importers…and eventually comes out of the pockets of their customers, employees and owners.

Effectively, it is a tax. The Tax Policy Center estimates that it will cost the average family $2,100 next year alone. And like all taxes, it takes money from its rightful owners and shifts it to the feds. In both cases, the money is spent. But as long as it remains in the private sector it rewards people for making things other people want.

Government spending, on the other hand, is inherently wasteful and inefficient, depressing long-run GDP. The Penn Wharton Budget model, for example, estimates that the tariff policies will take about 6% off of GDP and 5% from wages…with a ‘lifetime loss’ of about $22,000 per middle-class household.

And while the American public is losing wealth, so are the feds. Team Trump has dangled several carrots in front of the tariff nag. They might replace income taxes, for example. Or, he says the administration could share a ‘dividend’ with the public.

Income taxes currently raise about $2.5 trillion. Tariffs are headed to collect about $200 billion or $300 billion per year. Not exactly chicken feed, but nowhere near enough to eliminate income taxes.

And let us say that each household gets a ‘dividend’ check for $2,000. That would absorb every penny of tariff revenue — and more. What would be the point? Tariffs would turn into another hole in the federal budget.

And the hole would get bigger. Forget about replacing the income tax. If the tariffs work at all, they squeeze off imports in favor of inferior domestic production at higher prices. And as the volume of imports goes down, so does the amount of tariff taxes we collect.

If Volkswagen, Mercedes, Kia, Toyota and Hyundai et al switched all their manufacturing to the US, for example, which is what the tariffs are designed to encourage, our tariff revenue on them would go to zero.

In other words, the more the tariffs bite…the more America bleeds. Leon Hadar:

This is how nations decline: not through dramatic crises, but through the accumulation of poor choices defended by increasingly implausible rhetoric, while the real costs are distributed across millions of households too diffuse to mobilize politically. Trump’s tariff regime offers us a case study in this process, dressed up in the language of economic nationalism and US revival.

Typical late, degenerate empire jackassery, in other words.