Billionaire Support For Trump Is Strictly Self-Serving— And Against America's Interests

You may have learned in high school that the Smoot-Hawley Tariffs (1930) caused the Great Depression. It’s not true. What is true though is that the tariffs deepened the Depression and made it much, much worse. The House passed it in May 1929— 20 conservative Democrats joining all the Republicans. In the Senate it passed 44-42 with 5 Democrats voting with the GOP. Economists warned that the tariffs would be a disaster and actually convinced Hoover, who called the bill “vicious, extortionate, and obnoxious” but after the reactionaries in his Cabinet threatened to resign, he signed it anyway. 

You might think that the economic decline following the Smoot-Hawley would serve as a historical warning about the dangers of protectionist policies, especially because the global economic environment today is even more interconnected than it was in the 1930s, meaning the potential for widespread economic disruption from tariffs is even greater. Trump and his advisors are impervious to this… as if they want to destroy the economy.

If Trump thinks he’s going to avoid the retaliatory tariffs from other countries and a sharp decline in international trade he must be smoking something very strong. An unintended consequence of Smoot-Hawley was that American industries and agriculture lost their overseas markets, leading to further job losses and economic decline, exacerbating the economic downturn. The reduction in international trade contributed to a deeper and more prolonged Depression. You don’t have to be brilliant to understand that stifling trade and reducing economic activity would hamper recovery efforts.

Trump’s tariffs will disrupt supply chains and lead to inefficiencies in the economy. Industries that rely on imported materials may face higher costs, leading to reduced competitiveness and severe job losses. Trump's proposed tariffs, combined with tax cuts that primarily benefit the wealthy, will likely lead to similar economic disruptions, increased wealth inequality, and overall harm to lower-income households. Yesterday a team of NY Times reporters noted that it is brain-dead reactionaries like Marjorie Traitor Greene pushing the Trump Tariffs most actively.

What Trump wants is an across the board 10% tariff on almost all imports and 60% on Chinese goods. What no seems to have explained to Trump is that China is one of the largest foreign holders of U.S. Treasury securities— over $1 trillion worth. If the trade tensions escalate, China might consider reducing its holdings of U.S. Treasuries as a retaliatory measure, which would cause an increase in yields (interest rates). Higher interest rates could increase borrowing costs for the U.S. government, businesses, and consumers. On top of that, rapid selling of Treasuries by China could lead to market instability, affecting global financial markets and investor confidence. That’s to say nothing of the fact that higher tariffs— plus trade wars— slowing down economic growth by increasing costs for businesses and reducing export opportunities. Trump doesn’t seem to either understand or care that high tariffs would strain U.S. relationships with not only China but also other trading partners who might view such measures as protectionist and aggressive. Europe might strengthen their trade alliances with China, potentially isolating the U.S. in global trade discussions and agreements.

Trump’s position is that “mixing tariffs with tax cuts will revitalize American businesses and manufacturing, boosting jobs and benefiting working-class Americans. And they see tariffs on foreign products as a lucrative source of revenue, one that could be used to offset a drop in tax receipts.”

Some economists have a different view, saying that cutting taxes while raising tariffs could have harmful consequences by widening the gap between the rich and the poor. Companies often pass on the cost of tariffs to consumers in the form of higher prices. As a result, economists say, lower-income households would be hit hardest by tariffs since they spend a greater share of their income on goods. Income taxes tend to fall more heavily on wealthier Americans since many low-income workers do not make enough money to owe federal income taxes.

Kimberly Clausing, an economist at the Peterson Institute for International Economics, who served in the Treasury Department under President Biden, said combining tax cuts and tariffs would increase income inequality substantially and “hurt the very voters that Trump is counting on to put him in the White House.”

The income tax “acts to reduce income inequality in our country by asking more for those at the top,” she said. “A tariff is never going to achieve that.”

…At the core of Trump’s tax agenda is extending the cuts that he enacted in 2017. Many of those— including lower individual tax rates and a larger standard deduction— are set to expire at the end of next year, setting up a high-stakes legislative battle in Washington. While low- and middle-income Americans benefit from the tax cuts, the gains still disproportionately accrue to the rich, according to an analysis by the Tax Policy Center, a Washington think tank that studies fiscal issues.

Republicans have largely rallied around extending the expiring provisions. Trump and some of his economic advisers are also eyeing tax cuts that go beyond the 2017 law, including lowering the 21 percent corporate tax rate and suspending the payroll taxes that businesses and employees pay to fund Social Security and Medicare.

So Republicans will finally get their dream— the destruction of Social Security and Medicare and a weakening of the whole idea progressive taxation. A bonus for them: tariffs, a tax on imported goods, lead to higher prices for consumer products. Lower-income households spend a larger proportion of their income on necessities, including imported goods, meaning they would bear a greater burden from these price increases. As tariffs raise the cost of goods, the increased expenses disproportionately impact those who can least afford it. But… the proposed tax cuts primarily benefit wealthier Americans. The 2017 tax cuts, which Trump aims to extend and expand, significantly reduced taxes for corporations and high-income individuals, while the benefits for lower- and middle-income Americans were, at best, modest. The idea of potentially eliminating income taxes would predominantly benefit those who pay the most income tax– the wealthy– further exacerbating income inequality. By combining regressive tariffs with tax cuts that favor the wealthy, the proposed policy would likely worsen income inequality. Mainstream economists argue that income taxes help to mitigate income inequality by taxing those who can afford to pay more. Removing or reducing these taxes while implementing tariffs shifts the tax burden onto lower-income households, increasing the wealth gap. Even if tariffs generate significant revenue, they are unlikely to replace the revenue lost from eliminating or drastically reducing income taxes. Estimates suggest that a 10% tariff on most foreign goods might generate around $2.5 trillion over ten years, far less than the $2 trillion collected annually from income taxes. This shortfall would likely lead to increased deficits or cuts in essential public services, further harming lower-income individuals who rely more on these services.

What Trump plans to do is the opposite of policies that redistribute wealth more equitably, such as progressive taxation, strong social safety nets, and public investment in services like healthcare and education. Trump's proposals, by reducing taxes for the wealthy and increasing costs for the poor, run counter to these goals.