David Frum: Trump’s Plan to Raise Your Taxes

Thought Leader: David Frum

August 16, 2024

Written by: David Frum

This piece is by WWSG exclusive thought leader, David Frum.

We believe that a million cheap knockoff toasters aren’t worth the price of a single American manufacturing job. We believe in rebuilding American factories and rebuilding the American dream.” So said Republican vice-presidential nominee J. D. Vance at a rally in Henderson, Nevada, at the end of July.

Let’s do the arithmetic. Right now, you can buy an imported toaster at Walmart for less than $10. Fifty years ago, an equivalent toaster—then American-made—cost about $16, or $122 in today’s money. That’s $112 in consumer savings per toaster achieved over the past half century. Multiply by 1 million and the total reaches $112 million in enhanced consumer welfare. Is that not worth one job?

Donald Trump is campaigning for president on a vow to hike tariffs on foreign goods: 10 percent on all goods from all countries—or even 20 percent, as he has more recently suggested—topped by an extra-punitive rate of at least 60 percent on goods from China. Economists estimate that Trump’s brain wave would raise costs for the typical American family by at least $1,700 a year.

Trump’s screw-the-consumer tariff plan should create a grand political opening for his opponents. There’s just one small problem: The Biden-Harris administration’s record is almost as anti-trade as Trump’s. Trump was the most protectionist president since Herbert Hoover. Biden is a strong runner-up.

Voters do not seem to blame Vice President Kamala Harris for the price increases of the Biden years. One way for her to lock in that advantage? Repudiate the price-hiking trade protectionism of the past eight years—and recommit to open trade and its enormous advantages for almost all Americans.

Tariffs are taxes—taxes that weigh most heavily on the poorest Americans. Protectionism is, and always has been, regressive, a fact most brutally illustrated by the tariff tables themselves, according to figures compiled by Ed Gresser of the Progressive Policy Institute.

The tariff on a sterling-silver spoon is 3.3 percent. The tariff on a silver-plated spoon is 4.2 percent. The tariff on a stainless-steel spoon? It’s 14 percent.

The tariff on a silk pillowcase is 4.5 percent. The figure is 11.9 percent for a cotton pillowcase and 14.9 percent for a polyester pillowcase.

The tariff on a cashmere sweater is 4 percent. The tariff on a wool sweater is 17 percent. The tariff on an acrylic sweater is 32 percent.

The tariff on leather dress shoes is 8.5 percent; on expensive running shoes, 20 percent; and on the cheapest sneakers, a painful 48 percent.

Not only are luxury goods taxed at a lower rate than everyday items, but another inequity emerges too: Tariffs are consistently higher on products made for women than ones designed for men. Women’s underwear, for example, carries a tariff of 15.5 percent; men’s underwear, 11.5 percent.

Tariffs would be regressive even if they were charged at a flat rate, because the richer you are, the less of your income you spend on tariffed goods. Both the banker and her assistant may wear the same top-of-the-line running shoe to the company’s annual 5K run. But the 20 percent tariff on the shoe will matter a lot less to the banker than to the assistant.

The familiar justification for tariffs is to shield U.S. jobs in tariff-protected industries. The goal of a protective tariff is not to collect revenue for the government but to change the behavior of consumers. A 32 percent tariff on acrylic sweaters should, it’s hoped, allow American acrylic-sweater manufacturers to charge one-third more for their product than their foreign competitors and yet stay in business.

In reality, the tariff code now exists as a kind of museum to long-defunct industries. Only one manufacturer of stainless-steel cutlery exists in the United States. The cutlery market is overwhelmingly dominated by imports from China, India, and Vietnam. The tariff does not protect. It redistributes from low- and moderate-income households to other people. Who?

The 2024 Republican platform gives a clue: “As Tariffs on Foreign Producers go up, Taxes on American Families, Workers, and Businesses can come down.” Many elements of the 2017 Republican tax cut are set to expire in 2025, notably the cuts in the top rates of income tax. Trump wants to renew the 2017 tax cut. The Republican platform proposes to offset upper-income tax cuts by raising taxes on purchases by less affluent Americans.

Democrats should be able to make political capital out of that, shouldn’t they? Unfortunately, Preside Joe Biden’s own foray into protectionism has disabled one of his party’s best potential issues.

The central claim of American protectionists from the 19th century to this day is that tariffs are a tax not on Americans but on foreign producers. “China is paying,” Trump boasted during his 2020 debate with Biden. “They’re paying billions and billions of dollars.”

That’s not true, it’s never been true, and Biden correctly rejected the claim during that debate. Since then, however, Biden’s own trade representative, Katherine Tai, has effectively endorsed Trump’s false claim. At a press briefing in May, Tai denied that tariffs raise prices: “That link, in terms of tariffs to prices, has been largely debunked.”

Her office tried to walk back the comments. “Tai was trying to make the case that tariffs did not cause the inflation experienced during and after COVID-19,” a spokesperson told CNN. Yet a month later, in an interview with Vox, Tai again exonerated tariffs as a culprit for rising prices: “When we have started looking back at the last five and six years of prices in the United States, you did not see an automatic increase in prices as a result of tariffs.” As a Vox reporter noted, at least four different major studies contradict that view.

Protected industries naturally use the relief from competitive pressure provided by tariffs to raise their own prices. Tariffs would otherwise have little point. Yet Tai rejects the label “protectionist.” Whatever label you choose to apply, however, the policy convergence between the Trump trade record and the Biden one is unmistakable.

As president, Trump imposed tariffs on a huge range of Chinese exports, including high-tech components, underwear, even kitchen utensils. Biden kept all of those tariffs on Chinese goods, strategic and nonstrategic. He then added new or higher tariffs on semiconductors and electric vehicles.

Biden did lift some tariffs that Trump had imposed on friends and allies in Europe and North America. But Biden more than offset those friendly gestures with a flurry of “Buy America” provisions in his infrastructure bill, and, in 2022, with lavish subsidies for U.S. firms through the Inflation Reduction Act and the CHIPS Act. “Buy America” rules and domestic subsidies are tariffs by another name; they just shift the cost of the special favor to the domestic producer from the consumer to the taxpayer.

In a 2018 CNBC interview, then–Commerce Secretary Wilbur Ross defended the Trump administration’s tariffs on steel and aluminum by hoisting a can of soup into the television frame. The tariffs, he said, would add less than a cent to the cost of the can. By the same math, however, those tariffs would add nearly $200 to the price of a car.

But Ross’s let-them-eat-soup calculation hugely understates the cumulative cost of tariffs to the U.S. economy. A tariff is something worse than an ordinary tax to be paid once. Unlike the soup can, many of the products made more expensive by tariffs are also inputs into other products further along the supply chain.

When Trump imposed tariffs on steel and aluminum, yes, he inflated the cost of a can of soup—but he also put every U.S. industrial user of steel and aluminum at a cost disadvantage to all their other competitors on Earth. Ditto for the U.S. manufacturers of doors and windows, of airframes and aerospace components, of advanced electronic products—all were hit with a politically dictated cost increase. Some of those manufacturers may relocate outside the United States to retain world-market-price access to the aluminum they use, generating pressures for new tariffs on an ever-multiplying range of products.

Virtually every industrial product is also a component in somebody else’s business. If the government slaps a tariff on advanced semiconductors, then it thereby raises the cost of every good or service that uses them. If it puts a tariff on solar panels, then it raises the cost of solar-generated electricity to every user. If it charges a tariff on light trucks, then scarcely an industry in the nation will escape the hit. Every new tariff spreads price distortions through the tariff-afflicted economy. Every new tariff invites market-distorting evasions by users confronted with the higher cost. Every new tariff begets special-interest demands for additional ones.

More than a century ago, the economics writer Henry George described the mayhem that follows:

To introduce a tariff bill into a congress or a parliament is like throwing a banana into a cage of monkeys. No sooner is it proposed to protect one industry than all the industries that are capable of protection begin to screech and scramble for it.

Trump’s top trade official, Robert Lighthizer, congratulated himself in his 2023 memoir that Biden “essentially adopted the Trump trade policy during his 2020 campaign.”

Tai returned the self-compliment in a June 2024 interview:

Where I find an alliance with Bob [Lighthizer], is a commitment to the fact that we have to change our approach to trade, that the world is significantly different, and that the benefits here in the United States are not inclusive enough.

Tai went on to note that “on China, I think we share a lot of the same diagnoses.”

Biden-administration protectionism emerged from the conjunction of two imperatives. The first was ideological.

An important faction within the Democratic Party has long advocated that the U.S. adopt a more active industrial policy, one that would enhance the government’s role in all important investment decisions. National Security Adviser Jake Sullivan gave voice to this view at the Brookings Institution in April 2023, rejecting the assumption “that markets always allocate capital productively and efficiently.” To correct the failures of the markets, he went on, the government should make “targeted public investments … in sectors vital to our national well-being.”

That ideological imperative was reinforced by a second, political one. Trump defeated Hillary Clinton in 2016 by winning the industrial Great Lakes states of Michigan, Ohio, Pennsylvania, and Wisconsin. The Biden-campaign plan for 2020 (and again for 2024) sought to win back those states. Exactly how and why Trump won them in 2016 remains a matter of dispute.

Trump’s tough line on immigration seems at least as eligible an explanation of his 2016 appeal as his hostility to international trade. But shifting toward Trump’s position on immigration was profoundly unacceptable to the Biden operation. Shifting on trade was more tolerable. Trade, not immigration, was chosen by the Biden team to replace the missing masonry in the formerly solid “blue wall” midwestern states.

Which is how we got here—not a good place to be.

If you doubt that private markets always allocate capital efficiently—a perfectly valid doubt—wait until you see the record of government allocation. In 2021, the Biden administration committed $7.5 billion to an ambitious nationwide program of electric-vehicle charging stations. To date, seven stations have been built, for a total of 38 charging points. (By contrast, the private sector in the U.S. had installed more than 64,000 stations by the end of 2023, with some 175,000 charging points.)

The Biden administration explains this miserably slow rollout as a consequence of government inexperience. The $7.5 billion was shared among state transportation departments, few of which had ever built charging stations before. But it’s also true that the government invests differently from the private sector. A reporter for The Washington Free Beacon obtained internal government memos detailing the many complex noneconomic requirements that constrain public-sector decision making: diversity and equity, environmental justice, multilingual-staff mandates, and so on.

The EV-charging-station slowdown is far from the only example of disappointing results from the Biden administration’s “modern American industrial strategy,” as its senior staffers tout the program. The promise of a government-led manufacturing boom is thus far not coming true. Actual capital investment in the sector during 2024 tumbled far below the high expectations at the turn of the year, Bloomberg News reports.

Scott Lincicome of the Cato Institute has compiled data showing that “total US manufacturing employment, output, orders, and capacity utilization have been basically flat since the Fall of 2022 (i.e., right after the IRA and CHIPS and Science Act were signed into law).” Every quarter, the National Association of Manufacturers surveys its members about their company’s outlook; in the six quarters from fall 2022 to spring 2024, the level of optimism was below the historic average.

This is not to say that government money buys nothing. But what it buys can have troubling secondary consequences. As Lincicome also observed:

So far, at least, the United States is witnessing less a “manufacturing boom,” and more the possible formation of a two-tier industrial economy. In Tier One are large companies in industries preferred by the government … According to various reports, these firms are investing, more optimistic, and, theoretically at least, poised to grow in the future. In Tier Two, however, are many existing American manufacturers, especially smaller ones and ones not targeted for government support, that are weaker and more pessimistic.

These smaller firms are especially harmed by Trump-Biden protectionism. Imagine you are a family-owned manufacturer of, say, motorboat engines. You depend on certain components imported from China. The Trump tariffs continued by Biden have raised your costs. You might possibly locate new suppliers in Vietnam, but you have no contacts in Vietnam.

Developing those new relationships will cost time, money, and trouble that your firm cannot easily afford. A bigger company might employ a person or team to go globetrotting to shop around. That may not be an option for you. Instead, you pass the cost of tariffs on to your customers in the form of higher prices—and lose market share to your competitors from, say, Japan and South Korea.

You can see the policy parallels between the two administrations even more clearly by what they didn’t do than by what they did do. From Franklin D. Roosevelt through Barack Obama, every U.S. president at least attempted some kind of trade-expanding action, and most successfully delivered. The last such pact to pass Congress was the U.S.-Colombia Trade Promotion Agreement, signed into law by Obama in 2011. His administration’s most ambitious trade project, the Trans-Pacific Partnership, failed in Congress in 2016. Trump withdrew America’s signature in 2017.

The Trump administration did negotiate a trade agreement of its own, but it was the opposite of trade-expanding. It deployed the threat of withdrawal from the North American Free Trade Agreement to compel Mexico and Canada to submit to new rules that discourage trade between North America and the rest of the world, and even within North America itself.

To qualify for tariff-free treatment under the Trump agreement’s auto rules, as compared with its NAFTA predecessor, an even greater proportion (75 percent) of an automobile’s parts must originate inside North America; 40 to 45 percent of the components must come from factories where workers make at least $16 an hour, which is at least four times the average wage in a Mexican auto factory. For auto manufacturing and many other industries, this agreement was protectionism by other means.

True free-trade agreements have been disdained by both the Trump and Biden administrations. Trump ardently encouraged the United Kingdom to quit the European Union. Pro-Brexit politicians assured the British public that they could replace former trade ties to Europe with a glittering new U.S.-U.K. Free Trade Agreement. It never happened, and not because of the familiar slovenliness of Trump policy making. As Lighthizer also described in his memoir, the Trump administration saw no U.S. benefit to such an agreement, and consistently sought to restrict trade.

British politicians hoped for a more sympathetic hearing from the Biden administration. But by the end of 2023, the U.K. had to accept that Biden was no more interested in negotiating a free-trade agreement than Trump had been.

In fact, Biden has not been interested in negotiating much of anything when it comes to trade. In 2022, the Biden administration unveiled a so-called Indo-Pacific Economic Framework for Prosperity—which had a lot to say about new obligations on U.S. partners but offered precisely zero improved access to the American market. Two years of further talks have not melted U.S. resistance to trade expansion one bit. Under Biden, the U.S. is demanding stricter regulation by Indo-Pacific partners of their own economies while offering nothing substantial in return.

Trade protection is often described as “populist.” If populism implies something of benefit to most of the population, then protectionism is the very opposite of populist. Taken altogether, Trump’s 2018 tariffs cost the typical American household about $250 a year, according to U.K.-based economists. The tariffs also destroyed more jobs than they protected, because many more Americans are employed in industries that use steel and aluminum than are employed to make steel and aluminum.

In one of the last official statements of his life, issued March 26, 1945, President Roosevelt reviewed his administration’s trade record:

Trade is fundamental to the prosperity of Nations, as it is of individuals. All of us earn our living by producing for some market, and all of us buy in some market most of the things we need. We do better, both as producers and consumers, when the markets upon which we depend are as large and rich and various and competitive as possible. The same is true of Nations.

We have not always understood this, in the United States or in any other country. We have tried often to protect some special interest by excluding strangers’ goods from competition. In the long run everyone has suffered …

The coming total defeat of our enemies, and of the philosophy of conflict and aggression which they have represented, gives us a new chance and a better chance than we have ever had to bring about conditions under which the Nations of the world substitute cooperation and sound business principles for warfare in economic relations.

Americans in the 2020s are rightly alarmed by the aggression and authoritarianism of the present Chinese regime. Trump tells Americans that the way to compete against China is to become more like China. Yet China’s great strategic problem is that it is ringed by hostile, mistrustful neighbors, while its few friends are poor and predatory.

America’s great strategic asset is that it leads a coalition of wealthy and powerful allies. Open trade binds that alliance together and invites aspiring friends to follow the American lead.

A second Trump term can bring only quarrels with friends and comfort to adversaries. That’s because of Trump’s twisted nature, his stunted and brutish psychology. It’s not too late to do better.

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