‘I was always very good at mathematics’: Trump goes all in on his tariffs

It seems like every time Donald Trump makes a public appearance, he promises yet another tax cut. Now he’s doing something similar with his cherished tariffs.

Interviewed by Bloomberg’s editor-in-chief John Micklethwait at the Economic Club of Chicago this week, Trump not only defended his plan to impose a 10 per cent baseline tariff on all imports to the US and a punitive 60 per cent tariff on imports from China, but doubled down.

If you make it horrible, they will come: Donald Trump has doubled down on his tariff plans.Credit: AP

Arguing that tariffs would not only raise hundreds of billions of dollars in deficit-reducing revenue from the exporting countries, but also provide an incentive to foreign companies to shift their plants to the US, he claimed that the higher the tariff, the more likely it was that companies would build their factories in the US to avoid it.

“In fact, I’ll tell you, there’s another theory, [it] is that the tariff, you make it so high, so horrible, so obnoxious that they’ll come right away,” he said.

“There’s two ways of looking at a tariff. You can do it as a money-making instrument, or you can do it as something to get the companies. Now, if you want the companies to come in, the tariff has to be a lot higher than 10 per cent, because 10 per cent is not enough. They’re not going to do it for 10 per cent.

“But you make a 50 per cent tariff, they’re going to come in.”

‘The most beautiful word in the dictionary is tariff, and it’s my favourite word.’

Donald Trump

“All you have to do is build your plant in the United States, and you don’t have any tariffs,” he said, while threatening to apply high tariffs to imports of European cars, including Mercedes-Benz, to force them to build cars in the US.

He also threatened tariff rates of “100, 200, 2000 per cent” on cars from Mexico, which has a free trade agreement with the US and therefore could provide a back door to the US market.

“They’re not going to sell one car into the United States,” he said.

Trump rejects the consensus view of economists – and the actual experience of his 2018 tariffs on imports from China – that it will be US companies and consumers that pay the price, making them a form of consumption tax.

“We got hundreds of billions of dollars from China alone, and I haven’t even started yet,” he said.

He also thinks his tariffs will raise trillions of dollars to pay for his proposed tax cuts for companies and wealthy households, along with the abolition of taxes on tips, overtime, social security benefits, interest on car loans and credits for state taxes, despite estimates from credible authorities like the Peterson Institute for International Economics that the tariffs would raise only about $US200 billion ($300 billion) a year. The US government’s revenue base is close to $US5 trillion a year.

Most experts in trade policies believe Trump’s tariffs would damage the US economy and its relationships with the rest of the world, including America’s allies.

They also expect that, should Trump do what he has threatened, its trading partners will retaliate with tariffs of their own. The European Union has already drawn up a list of US goods to target.

Because he doesn’t understand how tariffs work, Trump thinks they are marvellous, a type of magic pudding that he can use to finance his ever-expanding list of tax cuts.

“The most beautiful word in the dictionary is ‘tariff’, and it’s my favourite word,” he said.

“It needs a public relations firm to help it but, to me, it’s the most beautiful word in the dictionary.”

The Committee for a Responsible Federal Budget recently estimated that the Trump policy platform would add $US7.5 trillion to US deficits and debt over a decade, and potentially as much as $US15 trillion, but Trump is adamant that his mix of tariffs and tax cuts will generate growth and reduce the deficit.

“I was always very good at mathematics,” he said.

Most of the economic think tanks that have analysed Trump’s tax, trade and immigration policies have concluded they will shrink the US economy, potentially substantially, reduce employment, ignite a new wave of inflation and result in increased deficits and debt.

During his last term as president, Trump claimed his tax cuts and deregulation would generate economic growth of as much as 6 per cent a year. It peaked at only half that level and his policies, even if the impact of spending in response to the pandemic is excluded, resulted in a massive increase in government debt.

For Trump, however, facts and expert knowledge don’t matter. His gut instincts, genius and business experience give him superior insights.

If Trump does regain the presidency and can implement his policies, they will damage the US economy. The regressive nature of his tax and trade policies and the plan to detain and deport illegal immigrants means they will probably damage US society, too.

And the damage wouldn’t be confined to the US. Indeed, even though the policies would do material long-term harm to the US economy and households, it is likely his trade policies would be even worse for US trade partners’ economies and consumers, particularly (but not exclusively) China and the EU.

Last time he was in office, Trump threatened to sack Federal Reserve Board chair Jerome Powell for keeping US interest rates too high for too long (although it is doubtful he had that authority).

This time, he says he just wants to be able to have the ability to influence, rather than direct, monetary policy, although some of his former White House staff have been looking at options for more direct influence over the Fed.

“As a very good businessman and somebody that uses a lot of, uh, sense [...] I think I have the right to say, you know, I think I’m better than [Powell] would be. I think I’m better than most people would be in that position. I think I have the right to say ‘I think you should go up or down a little bit’,” Trump said.

“I don’t think I should be allowed to order it, but I think I have the right to put in comments as to whether or not interest rates should go up or down.”

It’s not surprising Trump thinks he could do a better job than Powell, given his apparently deep insight into the role and its demands.

“It’s the greatest job in government. You show up to the office once a month, and you say ‘let’s flip a coin’ and everybody talks about you like you’re a god,” he said.

That’s not a perspective on central banking that central bankers or monetary economists anywhere would share as they try to make sense of reams of economic and financial data to protect growth and the stability of their financial systems.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.