Introduction: An era of freer trade made it possible for me to give new life to a dying refrigerator. Better for it to be of use in my garage than in a landfill. No freer trade, I junk the thing.
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No news here. President Trump proclaimed that his tariffs brought into the treasury $150 billion so far, by the end of July. His Treasury Secretary, Scott Bessent, projects $300 billion by the end of the year (see #1). The use of tariffs as a revenue generator is now a familiar part of Trump’s spiel. We’ve always had tariffs for a variety of well-worn reasons, but for most of our country’s history, a history without an income tax, tariffs were the chief source of revenue for Uncle Sam for all that the feds did at the time. Now we have an invasive income tax AND a new and ubiquitous tariff regime with a 15% floor covering most that enters the country thanks to Trump. The key lesson is our federal government’s insatiable appetite for more money to cover its still-growing $37 trillion debt, which just piles onto the backs of the citizens both the income tax and Trump’s tariff protectionism and its accompanying higher prices.
But who really pays the tariffs? In a display of economic illiteracy, Trump really believes foreigners pay. Read this display of historical and economic incoherence:
“In 1913 for reasons unknown to mankind, they established the income tax so that citizens, rather than foreign countries, would start paying the money necessary to run our government.” (see #2)
Is Trump advocating the abolishment of the income tax to make room for his “most beautiful word in the English language”? No, an end to the income tax appears nowhere in sight. Astonishingly, he actually claimed that foreign countries paid for our federal government. In the same breath, he and his Commerce Secretary, Howard Lutnick, contradict their logic by admitting price increases and fewer choices are the likely outcome.
Here’s Trump in an interview with Kristen Welker: “I don’t think that a beautiful baby girl needs – that’s 11 years old – needs to have 30 dolls.”
Here’s Lutnick in an interview with CBS’s Margaret Brennan advocating the avoidance of the tariffs by buying American: “[people who manufacture here] don’t pay a tariff. They don’t pay a tariff at all. So, President Trump says it all the time, build in America, you don’t pay a tariff.” And assumably you don’t have to worry about any tariff-induced price increases, or so says Lutnick (see #3).
The statements are incomprehensible. Trump doesn’t care that a margin of the buying public will be priced out of the market, and Lutnick fails to understand that a tariff raising the price of imports will lead to jumps in domestics as well. The price of the imported Toyota increases by $1,500 which leaves room for Ford to raise theirs by $750. The price floor is raised for all products no matter their country of origin (see #4).
Artificially raising prices alters behavior of all who confront them. Like me. Recently, my house refrigerator/freezer went on the fritz. It wasn’t cooling. The condenser coil was frosting over blocking the flow of air from the fan. The compressor is fine, so why the frost blockage? The defroster function clearly wasn’t working. The two most accessible parts in the defrost chain are the thermostat and defrost timer. Now began an online search for parts.
The price of parts varied dramatically for OEM (Original Equipment Manufacturer, possibly American) and the import (some from China). The price for the thermostat ranged from the OEM $60 to the import $8, and the defrost timer went from the OEM $120 to the import $22. Following the advice of the $3.37-billion in net worth Howard Lutnick or the $5-billion Donald Trump, versus the income of pensioners (my wife and I), they would have me pay the $180, which might not fix the thing. These guys could afford to junk the thing and shell out $1,500 for new, for two, maybe more. No big deal for them, one living in a $35 million Bridgehampton, NY, estate, and the other at Mar-a-Lago. For me, $30 makes the gamble worth it, which is what I did.
It worked. “Buying American” would mean another appliance in the county landfill instead of one in my garage for ice cream and cold drinks.
That’s how economics works. Prices are signals to us and unleash incentives and disincentives for certain economic actions. Policies that artificially raise prices inordinately affect people at one end of the income margin while being meaningless to those at the other end. But those at the upper-income end seem to be making the policy.
Speaking of being out of touch. Trump portrays himself as the blue-collar messiah. No, he’s only a blessing to certain blue-collars – the ones with plenty of campaign cash and political pull – at the expense of other blue-collars. And for the rest of us, we must navigate a more difficult market. Unfree trade has its costs, big time.
RogerG
Sources:
1. “July tariff revenues break monthly record, with $150B collected so far in 2025”, Amanda Macias, Fox Business, 7/29/2025, at https://www.foxbusiness.com/politics/july-tariff-revenues-break-monthly-record-150-billion-collected-so-far-2025.
2. “’A little tough love’: Top quotes from Trump tariff talk”, France 24, 3/4/2025, at https://www.france24.com/en/live-news/20250402-a-little-tough-love-top-quotes-from-trump-tariff-talk.
3. “Transcript: Commerce Secretary Howard Lutnick on “Face the Nation with Margaret Brennan,” July 20, 2025”, CBS News: Face the Nation, 7/20/2025, at https://www.cbsnews.com/news/howard-lutnick-commerce-secretary-face-the-nation-transcript-07-20-2025/.
4. “Tariffs—Everything you need to know but were afraid to ask”, Adam S. Hersh and Josh Bivens, Economic Policy Institute, 2/10/2025, at https://www.epi.org/publication/tariffs-everything-you-need-to-know-but-were-afraid-to-ask/#:~:text=By%20raising%20the%20cost%20of%20foreign-produced%20goods%20or,goods%2C%20allowing%20domestic%20businesses%20to%20also%20raise%20prices.