Trump’s New Tariffs on China Help Pay for his Corporate Tax Cut

August 2, 2019

Trump's claim that China is paying for the tariffs is completely false and basically serves to redirect income from his poor supporters to his wealthy supporters. Not only that, the policy will have the consequence of further isolating the United States, says Michael Hudson

Trump's claim that China is paying for the tariffs is completely false and basically serves to redirect income from his poor supporters to his wealthy supporters. Not only that, the policy will have the consequence of further isolating the United States, says Michael Hudson


Trump's New Tariffs on China Help Pay for his Corporate Tax Cut

Story Transcript

GREG WILPERT: Welcome to The Real News Network. I’m Greg Wilpert in Baltimore. President Trump announced on Thursday via Twitter that trade negotiations with China have stalled and that he will now impose a 10% tariff on $300 billion worth of goods imported from China. At a rally later in the day on Thursday, Trump said the following.

PRESIDENT DONALD TRUMP: I just announced another 10% tariff on $300 billion worth of Chinese products that come into our country. The fact is China devalues their currency, they pour money into their system, they pour it in, and because they do that, you’re not paying for those tariffs. China’s paying for those tariffs. And until such time as there is a deal, we will be taxing the hell out of China. That’s all there is.

GREG WILPERT: The announcement came as a surprise to financial markets, which plunged worldwide immediately after Trump’s tweet with the Dow dropping by over 700 points for example. China responded by saying that it will retaliate, but it did not specify how. Meanwhile, the IMF estimates that the US-China trade war will reduce global economic growth by at least 0.1%. International trade growth and business investment has stalled because of the trade war. Trump has long said that his main objective is twofold. On the one hand, he wants to China to make it easier for US companies to invest in China without giving away their intellectual property. On the other hand, he wants China to commit to purchasing more US-made goods in order to reduce the US-China trade deficit. The US and China had almost come to an agreement last June, but faltered over China’s unwillingness to change its approach to intellectual property.

Joining me now to discuss the US-China trade war is Michael Hudson, he is Distinguished Research Professor of Economics at the University of Missouri, Kansas City and Professor at Peking University, and recently met with China’s Academy of Social Sciences. His most recent book is J is for Junk Economics. Thanks for joining us again, Michael.

MICHAEL HUDSON: Good to be back here.

GREG WILPERT: So let’s start with what Trump claimed, which many have already criticized, but it bears repeating. That is, his claim that China’s actually paying for the tariffs and not US consumers. But if we end up paying more for Chinese products because of the tariff, is there any basis for this claim of Trump’s that the Chinese are paying this tax? And what purpose does this tax serve any way, other than to pressure the Chinese?

MICHAEL HUDSON: It would only be true that China pays if China’s firms would now reduce the prices they charge to Americans by the equivalent of 10%. In practice, this would be 30%. It would only be true if China would operate all of its export industry at a loss. And of course that’s crazy. No country would do that. China certainly wouldn’t do that. Trump is pretending that Americans will not pay this price. He’s pretending that our prices in this country will not jump by one or two or three percent, and they’re going to be a lot of shortages as imports simply stops from China. So, and basically what he’s trying to do is blame China and blame the foreigners for the fact that a lot of Americans are really hurting. They’re not doing better. They’re not earning enough to break even. They’re going further in debt. And Trump is really saying, it’s not our fault. It’s China’s fault. Don’t blame the financial mismanagement. Don’t blame the corporations. Blame China.

And he pretends that they’ll pay instead of, of course, Americans are going to pay. When you levy a tariff, the prices are going to go up here. Americans will pay more. The demands he’s making on China are nonsensical. No country is going to give away their autonomy and abolish their socialist economy, abolish everything and say, alright, we’re going to become an American satellite. We’re going to follow Thatcher and Reagan policies and let America buy all of our companies out and push us back into the 19th century Opium Wars. The Opium Wars are over and so it’s now Trump’s trade war. So this is nonsense, but there’s another reason that Trump is doing this, and that’s because he has something in mind that most people just don’t even think of.

And that is that the American budget, government budget is running up deeper and deeper debt as a result of Trump’s tax giveaway to the 1%. And so he says, how am I going to shrink the budget deficit? He says, I know I’ll make my constituency pay. That is, the people that voted for me. I’ll make labor pay. If I can raise taxes on 300 billion of Chinese imports by another 10%, that’ll be all together I think a 20%. That’ll yield $60 billion to help us solve the budget deficit that I might give away to Wall Street and the wealthy corporations he’s created. So it’s all a diversion so that people won’t look at what’s really happening. But they’ll look at what Trump is saying. As people find that they have to pay higher prices, I don’t think they’ll believe Trump. I think he’s lost all credibility. That’s why the stock market’s collapsing. They’re aghast. They think even Trump can’t get away with this big a lie when it’s so obviously false.

GREG WILPERT: Yeah. I think that’s a very interesting point about where these taxes might be going. I already mentioned though, the short-term consequences of this trade war, which is lower investment, less trade and lower economic growth. But what are the long-term consequences for the US of this trade war?

MICHAEL HUDSON: Well, it’s a war not only against China. It’s a war against the entire world. Trump has just recently stepped up the war against Russia a few days ago when the Senate agreed to penalize countries that help fund Nord Stream, like Germany. He has gone to war with the EU. He’s going to where with Germany. He’s gone to war with Venezuela, gone to war with Iran and Yemen. He is turning – he’s gone to war with the entire world. So the long-term consequence is China and Europe and Russia and Iran will draw much closer together, and America is going to be left isolated.

That’s what an isolationist policy is. It isolates America. And Trump is doing it and this is going to mean that America is going to have to fall back on its own resources. Trump’s pretense is that now that we have tariffs against China, we can restore manufacturing here, but there’s no way he can bring manufacturing back because it’s already gone. It takes years and years to rebuild factories, to put an infrastructure, and America basically is already so overpriced because of the cost of healthcare alone. Not to mention housing and debt. So he’s locked America into an austerity program, and this austerity program is going to get deeper and deeper over the next year or two.

GREG WILPERT: Now, if the effects of these tariffs are quite negative, as you point out. Wouldn’t that be an argument in favor of free trade then, in favor of neoliberalism? What’s your reaction to that notion?

MICHAEL HUDSON: Well, free trade is neoliberalism. What Trump wants is not free trade. It’s controlled trade. It’s telling other countries what they have to import from us and what they have to export to us. Colonialism was free trade. There is no way that America now can engage in free trade and win because we’re a high-cost economy and we’re not producing. If we’re not producing manufactures, there’s no way in which a change in currency values is going to shift production to the United States when we don’t have any factories to produce manufactures. You have to look at the structure of world trade and you realize it has nothing to do with tariffs at this point, nothing to do with currency values.

It’s to do with the fact that Wall Street and the corporate employers have jumped ship, they’ve moved abroad, and they’ve hollowed out the United States. And once it’s hollowed out, the only way you can rebuild it is to have public infrastructure, to have public subsidy just like China’s doing and other countries are doing, public health just like other countries are doing, to cut the costs to employers. But now that America and especially Trump, but also the Democrats want to privatize everything from healthcare to infrastructure, we’re going to be priced out of world markets whether it’s free trade or not.

GREG WILPERT: Now, finally, what do you expect the Chinese will do assuming that the US and China do not come to an agreement very soon?

MICHAEL HUDSON: Nobody expects them to come to an agreement. They think that America has made such outrageous demands that they surrender and become an American colony, that they’ve given up on America. They do not expect there to be a rapprochement. They are turning closer to Russia and to Europe. But basically what they’ve said is, we’ve been using our factories to produce consumer goods for Americans. It’s time we begin using them to produce consumer goods for the Chinese. So they’re going to raise their own living standards. They’re going to produce more for their own population. They’re going to develop much more trade with Europe.

And now that Europe has seen that America is trying to interfere with its trade with Russia, its oil trade, and is trying to get Germany and Europe to join the war against Iran, they’re saying, okay, the whole post-war unity with the United States is over. We’re now going to be part of Eurasia. So Trump has sort of been the parting guest. He’s driven Europe, Russia, China, and Iran together. And I joked before that he should get the peace prize for that. He’s unified the whole world outside of the United States.

GREG WILPERT: I think that’s a really, very powerful point. On that note, I’m going to have to stop here though for now. I’m speaking to Michael Hudson, Distinguished Research Professor of Economics at the University of Missouri, Kansas City. Thanks again, Michael, for having joined us today.

MICHAEL HUDSON: Thank you, Greg. It’s good to be back.

GREG WILPERT: And thank you for joining The Real News Network.