The Economic Illiteracy of the Trump Administration – Lil Wilbur Edition

Commerce Secretary Wilbur Ross leaves CNBC hosts dumbfounded after he tells them that American families won't be bothered by tariffs on $200b of Chinese goods because "it's spread over thousands and thousands of products" so "nobody will actually notice" that prices went up. pic.twitter.com/VXgCZ9EQFr

— Aaron Rupar (@atrupar) September 18, 2018

So our slipper wearing, sleep drooling, straight out of the 1970’s manufacturing based economy Commerce Secretary Wilbur Ross has some brilliant insight into the Trump Administration’s new tariffs on $200 billion USD worth of goods purchased by American’s from China.

And that brilliant insight is… it doesn’t matter!

So let’s do some basic maths because we’re smart like that.

A 10% tax on $200 billion in value means that American’s will pay $20 billion more for everything.

Okay so $20 billion… divided by… 300 million… $66…

That means there will be an increase in costs of $66 per every single man woman and child in the United States.

That means a family of four will need to pay an extra $264 SOLELY because of the idiocy of the federal government.

For a family of 4 earning $23,500… that is an extra 1.1% of their total income wiped out solely from taxation.

What you need to realize is that $264 is on top of everything an American family already has to pay out. It is not a single straightforward tax. It creates a general price rise for everything.

On top of that, that calculation is based only on the direct tax. Taxation adds costs all across the economy, not just directly at the checkout, and companies often end up having price rises that exceed the newly introduced tax. 

This occurs because of direct increases in the cost of materials, increased amounts of labor needed to comply with new taxes, and of course general inflation. That means a 10% tax can easily lead to an overall increase of 15% to consumers. The world is not black and white. A 10% tax does not mean just a 10% increase in costs.

There are also indirect costs to such a tax…

Companies may very well simply choose to no longer import materials or finished products from China. There can be disruptions in the supply chain. There are some products where companies will simply shrug and do nothing because 10% completely wipes out their profit incentive.

Meaning consumers may face a lower available stock of products in stores or no stock at all. Imagine you go to Walmart for some cheap batteries… Only to find that the ONLY batteries in the display case are extremely overpriced Duracell batteries. 

This kind of indirect cost is incredibly difficult to quantify… meaning it’s often ignored. But it has has very real effects on an economy. This is because people are no longer having their needs met, can no longer achieve what’s necessary, and their overall well-being drops. In other words, consumers are facing an increase in costs while also losing utility.

Multiply that trip to Walmart by 300 million and you get a general idea of the indirect costs that can occur… that’s more likely than not over 300 million gallons of gas wasted, 300 million man hours wasted, and the consumer achieves nothing from the activity.

All of these direct and indirect costs add up, multiply, and make everyone’s life harder while benefiting almost nobody.

Tariffs don’t achieve squat.

Lil Wilbur needs to have a big think about his brilliant ideas because they sure don’t sound brilliant when you do the basic maths.