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Haley’s Ad Misleads About Trump’s Proposed Tariffs

Para leer en español, vea esta traducción de Google Translate.

As former President Donald Trump campaigns on the exaggerated claim to being the largest tax cutter in U.S. history, the latest ad from Nikki Haley’s campaign misleadingly claims Trump now favors “a 10% across the board tax increase.”

The ad refers to a proposal Trump that floated in an interview last August to impose a 10% tariff on all imported goods. Economists have warned that most of the cost of those tariffs would ultimately fall on American consumers of foreign products.

But without the qualifier that Trump is proposing a “10% across the board tax increase” on imported goods (emphasis is ours), many viewers might assume the ad meant that Trump was proposing to raise all Americans’ federal taxes by 10%. That’s not what Trump has proposed.

Haley, the former U.S. ambassador to the United Nations under Trump, is the last remaining obstacle to Trump’s being elected the Republican nominee for president. The ad from Haley’s campaign argues another Trump presidency would lead to “more chaos” and — among other things — higher taxes. It is running in her home state of South Carolina, where the GOP primary is Feb 24.

In an interview with Larry Kudlow on Fox Business on Aug. 18, Trump proposed a 10% tariff on all foreign goods imported to the U.S. Or, as Trump put it, “I think we should have a ring around the collar, as they say.” Trump also proposed a “matching” tariff for any country that imposes tariffs on American products above that 10%. Trump called it a “retribution” tariff — “if they charge us, we charge them. Very simple.”

“I do like the 10% for everybody,” Trump said. “The problem with the 10% is that some countries are much bigger abusers than others.”

The revenue from all of those tariffs, Trump said, “would be used to pay off [the federal] debt.”

The Haley ad cites a CNBC story on Jan. 22, in which various economists warned Trump’s proposed tariffs would hurt the U.S. economy by lowering gross domestic product, adding to market uncertainty and discouraging economic activity.

The Haley campaign also pointed us to a Washington Post article on Aug. 22 that warned Trump’s plan might trigger a global trade war and would lead to higher prices for American consumers.

“A tariff of that scope and size would impose a massive tax on the folks who it intends to help,” Paul Winfree, an economist who served as Trump’s deputy director of the Domestic Policy Council and is now president of the Economic Policy Innovation Center, a center-right think tank, told the Washington Post. “It would get passed along through higher prices at a time when the Federal Reserve has had difficulty limiting inflation.”

The Haley campaign also cited Tax Foundation research by Erica York, a senior economist and research director with the foundation’s Center for Federal Tax Policy, who concluded that “a new 10 percent tariff on all imports would reduce the size of the U.S. economy by 0.7 percent and eliminate 505,000 full-time equivalent jobs” and “would threaten the entire system of global trade we currently enjoy.”

Such a tariff system, York wrote, “would raise U.S. taxes by more than $300 billion.”

“When the U.S. imposes a tariff, the person in the United States who is importing the good pays a tax to the U.S. government when they import the foreign goods,” York told us via email. “U.S. tariffs are taxes on U.S. consumers of foreign goods that must be paid by the importer of the good.”

“The ultimate person who bears the burden of the tariff may differ from the person who pays the check to the government. For instance, a business may decide to pass the higher costs down to its consumers. It is possible for foreigners to bear some of the burden too if they decide to lower their prices,” York said. “Recent research from the 2018-2019 trade war indicates that U.S. importers bore nearly all the cost of higher U.S. tariffs though, as foreigners did not change their prices.”

And, she said, the “burden of a tariff falls heavier on lower- and middle-income households” because those households “spend a greater share of their income than higher-income households do, so they bear a disproportionate share of the tariff burden.”

“A tariff is just another form of tax,” York said. “So, Trump’s proposal is quite literally a proposal to impose a 10 percent tax increase on everything American consumers purchase from abroad.”

Still, that’s different from a “10% across the board tax increase” on all Americans, which is how we think most viewers would interpret the claim in the Haley ad.

“The import of U.S. goods and services represent about 15 percent of GDP, or, about 18 percent of all consumption,” Kent Smetters, a professor of business economics and public policy at the University of Pennsylvania’s Wharton School, told us via email. “So, at first glance, a 10% increase in tariffs represents a 1 to 2 percent increase in average income taxes. Moreover, some of that tax could be avoided by substituting away from imports (e.g., less French wine and more CA wine).”

“Still,” he said, “that simple calculation underestimates the true economic impact of tariffs.”

“First, some imports are intermediate products that represent critical pieces of production,” Smetters said. “Production could be substantially reduced for final products that are much larger in value than the tariffs imposed on the intermediate goods, that is, until substitute intermediary products are found in sufficient supply.”

Smetters also warned that a trade war could lower prices U.S. producers get for their exports, which ultimately would lower the wages of their workers. And, he said, import tariffs give U.S. firms the ability to raise their prices, as has happened when tariffs were levied in the past on light trucks.

“Overall, while the 10% income tax is an overestimate, there is still the potential for substantial harm,” Smetters said, adding that “we ultimately will not know the harm caused until we see how our trading partners respond.”

When he was president in 2018, Trump imposed a series of tariffs on Chinese goods, culminating in an increase in tariffs on $200 billion worth of Chinese goods from 10% to 25%. (China retaliated with its own tariff increases on American products.) Biden has kept in place many of those tariffs.

Smetters told us in 2019 that the new tariffs imposed under Trump would cost the average American family between $500 and $550 that year.

At that time, Kudlow, who was the top White House economic adviser, argued that warnings about tariffs damaging the economy were “pretty wildly exaggerated,” though he acknowledged the tariffs would reduce the GDP by a “very modest” amount. Kudlow said increasing tariffs was “a risk we should and can take without damaging our economy in any appreciable way” in order “to correct 20 years plus of unfair trading practices with China.”

We should note that Trump has repeatedly made false and misleading claims about tariffs while he was president, including how much proposed tariffs would raise, the amount the U.S. collected in tariffs before he took office, and the benefits resulting from his tariffs.

No matter what one thinks of Trump’s tariff plan, though, a 10% tariff on all imports is not the same as a 10% tax increase on all American families, as Haley’s ad suggests. Nevertheless, economists say the cost of those tariffs would fall, indirectly, on American consumers.

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