MAGAs get it wrong
Ask MAGAs who pay the cost of tariffs, and they will tell you it's foreigners. They are wrong. We should not be surprised. Failure to understand how things work is why they are MAGAs in the first place.
How a Chinese-made microwave makes it to a retailer in the US
Consider how a Chinese-made microwave oven ends up on an American store shelf. Raw materials are made into parts. An assembly facility in China amasses the parts and makes a microwave. A US importer pays the manufacturer for the finished product and has it shipped to a warehouse in the US. An American wholesaler buys it from the importer and ships it to their distribution facility. A retailer buys it from the wholesaler and has it shipped directly to a store or a distribution facility for multiple stores.
Who pays the tariff initially? The importer — in US dollars — which they send to the treasury.
Who ultimately bears the cost of the tariff? The end consumer will pay all or most of it. Why?
Here's why American consumers will pay for Trump's economic ignorance
Imagine you are a manufacturer dealing with Walmart. The world's largest retailer is ruthless about costs. Due to its size, it will likely be its own importer and wholesaler. Walmart buyers and operations managers are focused on driving down costs at every point in the supply chain. Any manufacturer supplying Walmart has zero fat in their price. If they did, Walmart would go to a different manufacturer. So the original maker is in no place to offer a price cut to offset anything more than a small fraction of a tariff — if that.
The cargo shipping company is equally constrained.
Walmart certainly doesn't have padding anywhere in its warehouse/distribution chain. Perhaps they might find a couple of cents on the tariff dollar. However, the efficiency of capitalism means there is little give in the cost structure until the good gets to the end consumer — who, as the last person standing, will bear at least most of the added cost.
Think of your local gas station. When the price of a barrel of crude goes up, the gas price at the pump increases. The pumping companies, refineries, pipeline owners, gas distributors, and gas retailers do not absorb the cost — any more than they absorb federal and state gas taxes. The driver filling their tank pays the increased price.
The good and bad news
The good news for the consumer is that tariffs are applied to the import price, not the retail price. The import price of a $100 microwave could be c.$50 for Walmart — a company that works on slim margins. But let's give the consumer a break and say the import price was $30. The retailer will then have to increase the sale price by $7.50 ($30 x 0.25)
So, while it is inaccurate to say that a 25% tariff increases retail prices by 25%, it will increase them by at least 7.5%. And that is pure price inflation for the consumer.
The bad news. If consumers are maxed out, they cannot increase their overall expenditure. So, every tariff dollar going to the feds represents a decline in total items they can buy. What does this mean?
Say a consumer has a $10 imported apple budget, and the retail price of an imported apple is $1. They can buy 10 apples. If tariffs increase the retail price of an imported apple by 11 cents, then that consumer can only buy nine apples for that $10. So, while the feds get $1 (9 x 11 cents rounded up), the consumer's purchasing power decreases.
Tariff policy can be summed up as: Pay more, buy less.
GOP fiscal policies since Reagan have made the tariff bite worse
For 45 years, Republican fiscal policies have funneled wealth away from people who spend most of their income on things (i.e., not the top 10%). As a result, most consumers are maxed out. And not just people with low incomes.
The Bank of America Institute published an analysis of consumers titled Paycheck to paycheck: what, who, where, why? Here are some of their findings:
According to our analysis, in 2024, around a quarter of all households fall into this camp, an increase from 2019. Naturally, lower-income households are more likely to struggle financially, but even some higher-income households appear to be spending nearly all they earn.
Generationally, paycheck to paycheck proportions rise with age, while geographically some states in the South have the highest share of paycheck to paycheck households.
Lower-income households, the old, and the South? Sounds like they are describing the MAGA demographic. There's an irony.
Tariffs, like any tax, will reduce the deficit — but not as much as advertised
Tariffs will reduce the deficit — but only in the short run. And not nearly as much as Trump claims. Tariffs are a tax, and increasing taxes decreases the deficit. However, tariffs are a regressive tax that falls hardest on the people who spend most of their income on stuff. Additionally, as Trump plans to extend tax cuts for billionaires, the net effect of his policies will be to increase the deficit while switching the tax burden increasingly to the poor.
In addition, Trump’s tariff numbers are a fantasy. In 2022, the US imported $3.2 trillion in goods. A 25% tariff on everything the US imported would net $800 billion — assuming Americans kept buying as many items as they did before. In 2023, the deficit was $1.833 trillion. So, at best, the federal deficit would still be over $1 trillion. But there will not be an "at best." This is Trumponomics, after all.
It gets worse
As discussed above, tariffs will cause US consumers to buy less stuff. So, the total value of the goods subject to tariffs will decrease. Ergo, so would the total value of tariffs collected.
More importantly, tariffs are a cost designed to change consumer behavior. Their whole point is to switch purchasers to domestic goods — on which there are no tariffs (duh). The more successful (i.e., painful) tariffs are, the less revenue they generate.
While that is happening, Trump is also extending low corporate taxes. So, as domestic profits increase, corporations' taxes on those profits will stay low or go lower. So where is the deficit-offsetting federal revenue going to come from? I don't know.
In addition, retaliatory tariffs will hammer America's exporters. Many workers at those companies will lose their job. That would be part of the 'pain' Trump and his sycophants are warning will soon hit citizens. They promise it will be short-term. Don't hold your breath. They do not have a good record of keeping their promises.
Tariffs are a scam
In a nutshell, federal revenues will decrease as tariffs increase, and the deficit will get worse. The middle class and poor will see their tax burden go up. And they will not be able to buy as much stuff as before. Meanwhile, oligarchs will add to their stash of idle cash sitting in investment vehicles that generate little incremental economic revenue.
This insanity is what MAGA voted for.
