A better use for the money that US consumers will spend on President Trump’s tariffs.
(Bonus content later this week: Does President Trump hate the Super Bowl?)
We’re only a week into the second Trump presidency and we are seeing that he was serious about his campaign promises. Immigration raids have started, including a raid conducted without a warrant that resulted in the detention of U.S. citizen and military veteran in New Jersey. The first volley of a trade war began after Columbia refused to accept a shipment of deported people and then backed down. And, the Trump administration has challenged the constitutional right of birthright citizenship to various groups, including, of all people, Native Americans.
There’s obviously a lot to discuss after a tumultuous week. But let’s focus on one particular item. Throughout the campaign former Vice President Harris frequently referred to the “new tax” that Trump intended to place on U.S. consumers. As we know, that tax was the tariffs that he intended to apply, and after election continues to promise. The amount of the tariff he intends to charge seems to change by the week and so do the countries and goods.
Why did Harris call this a tax and not a tariff? Well, that’s because a tariff is, in fact, a particular type of tax. As we all know, if you go into a store and purchase a pair of Nike shoes for $100 and the state in which you purchase them charges a 10% sales tax, then you hand the cashier $110 for your new shoes – the store keeps $100 and they send $10 to the state. Tariffs work in a similar way. The only difference is that the company sending the shoes to the US pays the tax in advance. So, if Nike produces their shoes in Asia, they have to pay a tariff when the shoes cross over the border and into the US. Of course, Nike doesn’t just pay the 10% and let it go. They attempt to pass that tariff charge on to US consumers just as the retail store does when the state levies a 10% sales tax on the shoes.
It isn’t exactly this simple, of course. There’s a bit of implicit bargaining behind the scenes. In reality the retail store selling you shoes has probably dropped their price a bit (maybe from $105 to $100) when the state levies their sales tax so that both the consumer and the retail store pay a portion of the $10. The same thing happens with taxes when they are implemented as tariffs. But here, the firm raises their prices to cover a part of the tariff.
Some economists specialize in calculating the details of how taxes and tariffs are split up and who ends up paying what share of taxes and tariffs. Liberal and conservative think tanks have estimated that the basic Trump tariff plans will end up costing the typical US household between $1,500-$2,500 per year. In the US today, there are around 130 million households. So, this puts the expected total charged to US consumers at between $195 to $325 billion. As studies have found, a majority of this amount will end up in the pockets of other foreign and US firms and very little will reach US workers. Essentially, tariffs end up subsidizing firms and increasing profits of already wealthy firm owners and shareholders in the US and abroad.
If President Trump really wants to help workers here is another option. Average tuition at a community college costs a little under $4,000 per year. Trade schools for professions like auto mechanic, carpenter, electrician, or medical assistant typically cost $5,000 to $15,000 per year depending on the trade studied and location of the school. There are currently 9 million students enrolled in community colleges and about 1.5 million in trade schools. If we provided full tuition scholarships and doubled the number of students enrolled it would cost about $72 billion for community college students and about $30 billion for students in trade schools. In total we could train young people or retrain older people, who have lost their manufacturing careers to globalization, for about $100 billion per year. That’s less than one-half of the lowest estimates for what consumers will pay from the Trump tariff plan!
Further, the US spends about $24 billion per year on the Pell grant program to help 7 million low-income students per year pay for college. We could quadruple that amount (by changing requirements to make more students eligible or by increasing the size of the yearly award which is currently $6,895) and, when added to the trade school and community college scholarships above, still only hit the lower estimate of the cost of the Trump tariffs. If the higher estimate is more accurate, we’d still have over $100 billion to spend before we hit the amount of money that Trump’s tariffs will cost US consumers.
This would be an investment in the future. Any benefits of tariffs will be short lived because tariffs make US firms temporarily competitive. I emphasize temporarily - as soon as the tariffs disappear, the artificially protected jobs disappear with them. Instead of paying this enormous cost that doesn’t fix the underlying problem of disappearing US manufacturing jobs, the US should invest in training young workers for the new globalized economy and retraining workers harmed by global competition. We should be training and educating workers to prepare them for jobs that are sustainable in the long run. That is a more bold and cost effective plan than retreating into a 1950s manufacturing job mindset that is simply not sustainable.
Troy Tassier is a professor of economics at Fordham University and the author of The Rich Flee and the Poor Take the Bus: How Our Unequal Society Fails Us during Outbreaks.
PS: Later this week I’ll have a short commentary on food inflation, avocados, and the Super Bowl.