Top 4 facts about Trump's tariff taxes

Here are the key things you need to know about Trump's tariff taxes and the trade war he has now started with almost the entire world.

Another day, another catastrophe in the infinite waste receptacle conflagration that is the Trump presidency — except that this could be the beginning of the very biggest catastrophe of his time in office, and that is really saying something.

Live shot of the stock markets after Trump’s tariff announcement.

Donald Trump literally just announced the highest tariffs in America in over 150 years and the first major tariffs of any kind in nearly 100 years.

This has sown a great deal of confusion, in part because it has been so long since tariffs were this big of an issue.

But we need to have our facts and arguments at the ready — so here are the key things we all need to know.

1 - Tariffs are taxes. The importing companies get taxed, and they pass the extra costs onto consumers. Plus the countries targeted will retaliate with their own tariffs. Because that’s how capitalism works!

First things first. A tariff is a tax on an import. The taxes are not applied to a country. The taxes are applied to the company doing the importing.

And do you actually think that companies getting hit with higher taxes are just going to eat that extra cost? Out of the goodness of their hearts? No, they are absolutely not. They will pass those costs onto consumers. Namely, all of us.

And do you actually think the countries getting hit with these tariffs are just going to accept them quietly? No, they are absolutely not. They will pass their own retaliatory tariffs in a game of tit-for-tat.

That is how business works. It is how markets work. It is how politics works. And anyone who tells you otherwise is either engaging in ignorantly wishful thinking, or trying to con you. Or both.

2 - Trump is lying terribly about the tariff rates other countries levy on us, exaggerating them by 3 to 10 times. Most real tariff rates are quite low.

Trump is banking on a simple schoolyard rationale for these tariffs — they’re doing it to us, so we’re going to do it back to them; what’s fair is fair; what’s good for the goose is good for the blah blah blah, etc.

Except that Trump is, of course, lying. China is not charging a 67% tariff rate; it is charging a 7.5% rate. The European Union is not charging a 39% tariff rate; it is charging a 5.2% rate.¹

It is perhaps easy to get outraged if you think that these trading partners are taxing American goods to kingdom come — except that they’re not. And we need to correct this disinformation.

3 - These tariffs are the highest in America since the Civil War. No, that is not a typo.

It appears that Trump’s tariffs, if they are implemented, would be the highest tariffs levied by the US since the 1860s. Check out the chart below. The key here is the blue line, which calculates the overall level of tariffs across the specific items that are to be taxed. In other words, while the orange line may show high tariff rates, they were in some cases limited to a certain subset of items — rather than an across-the-board tariff on anything coming from a particular country. This is why the Smoot-Hawley tariff, while high, was actually less high than the prevailing tariff rates throughout the 1800s.

Trump’s tariffs, at least based on what we know currently, appear to be across-the-board taxes on everything from virtually every country in the world.² So as bad as the Smoot-Hawley tariff was, it only hit an effective rate of 20%. To reach the effective rates Trump is aiming for — especially, say, the 34% rate on China — we need to go back into the 19th Century. Because that’s clearly where we should be getting our policy ideas from.

4 - The last big tariff in America, the Smoot-Hawley Tariff in 1930, was one of the key instigators of the Great Depression and made it far worse, both in the US and around the world.

There’s a reason why tariffs fell out of favor. It was the Great Depression, which was caused and exacerbated by a massive global trade war that destroyed 66% of global trade between 1929 and 1934 — and the American contribution to that trade war was the Smoot-Hawley Tariff of 1930.

The stock market collapse of October 28, 1929 was already a clear sign that the American economy was crashing. For Republicans in Congress, the solution was tariffs, passing Smoot-Hawley in March 1930. President Herbert Hoover initially was opposed to the tariffs, but he was pressured to go ahead with them and signed the bill in July 1930.

At that point, unemployment in America was around 8%. Consumer demand was dropping. People couldn’t pay their debts, and so banks were teetering.

Then suddenly the price of a whole array of consumer goods increased — which hurt consumers even more. They spent even less, and they had even more trouble paying debts. So bank failures accelerated. The whole thing spiraled, not just in America but across most developed economies.

By 1932, unemployment in the US was almost 25%.

Afterward, there was a broad consensus among both liberal and conservative economists and policy makers that Smoot-Hawley was a terrible idea and made everything worse. And after World War II there was a concerted global effort to lower tariff rates once and for all.

Until now.

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That’s just the beginning. There will be much more that we need to cover, to debunk, to correct, to argue — but I will leave on one silver-lining note for now.

Some of the worst tariffs in American history were followed by massive political backlashes, because — surprise surprise! — raising taxes on middle class and working class folks is incredibly unpopular. We’ll talk more about that soon.

1. It appears that Trump and his team came up with these fake tariff rates from other countries by taking our trade deficit with that country and dividing it by the value of the country’s exports to the US — an incredibly crude and ignorant calculation that would get a failing grade in any introductory course to economics, for reasons that are being very nicely explained by a slew of other commentators.

For our purposes, the point is simple. Trump is lying. The tariff a country charges is easily known — just check out the World Trade Organization data, which you can also get on Wikipedia. And Trump is stating numbers that are much, much, much higher. Total BS.

2. Except Russia. And North Korea.