How Trump's Tariffs Plan Might Work

Summary

Episode Summary: "How Trump's Tariffs Plan Might Work"

Podcast: The NPR Politics Podcast
Host: Sarah McCammon
Episode Release Date: January 1, 2025
Topic: Analyzing President-Elect Donald Trump's proposed tariffs plan and its potential economic implications.

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1. Introduction to Trump's Economic Promises

The episode opens with host Sarah McCammon introducing the focus on President-Elect Donald Trump's economic policy, particularly his campaign promises of significant tax cuts funded by new tariffs. Darian Woods from The Indicator from Planet Money sets the stage for an in-depth discussion with economic commentator Kyla Scanlon.

Sarah McCammon (00:21): "As President elect Trump plans to take office, how will his economic policy take shape? And is what he campaigned on even possible?"

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2. Understanding the Tariffs and Tax Cuts Proposal

Darian Woods and Kyla Scanlon delve into the specifics of Trump's proposal, which aims to implement broad tariffs on imported goods with the intention of generating revenue to fund extensive tax cuts.

Darian Woods (00:42): "Two big campaign promises from President Elect Trump were tax cuts and tariffs, and specifically the idea that the money generated from the tariffs will pay for the tax cuts he's promising."

Kyla Scanlon uses a creative metaphor involving cookies to illustrate how tariffs would affect imported goods.

Kyla Scanlon (01:13): "Those cookies are meant to explain trade policy because those cookies have ingredients from all over the world."

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3. Public Perception and Consumer Response

The podcast features a vox populi segment where Darian Woods surveys public opinion in Denver regarding the proposed tariffs. The responses indicate skepticism and concern among consumers about the practicality and potential negative effects of the tariffs.

Respondent 1 (01:52): "I think maybe people haven't read enough about tariffs and who actually pays for those tariffs in the long run."

Respondent 2 (01:52): "I mean, I see pluses for it and I see negatives for it, both."

Kyla Scanlon corroborates these sentiments, noting widespread uncertainty and apprehension.

Kyla Scanlon (02:08): "Either they're not sure how this would work or they see it as a bad idea or even inflationary."

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4. The Cookie Metaphor: Breaking Down Trade Policy

Using the cookie analogy, Kyla Scanlon explains the composition of imported and domestically produced ingredients, highlighting the complexity of implementing broad tariffs.

Economic Commentator (03:48): "I ordered these chocolate chip cookies from a bakery in New York City and about half of the ingredients... are imported from outside the United States."

Kyla Scanlon (04:12): "Under President Elect Trump's proposal, those imported ingredients will taxed and that means some very nice cookies might be about to get a bit more expensive."

This metaphor effectively illustrates how tariffs on imported goods would lead to increased costs for everyday products, thereby impacting consumers directly.

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5. Economic Implications: Revenue vs. Reality

A critical analysis of the financial feasibility of using tariffs to fund tax cuts is provided by Kyla Scanlon and corroborated by Erica York from the Tax Foundation.

Kyla Scanlon (06:08): "We would be putting tariffs on pretty much everything that comes into the United States."

Erica York (07:19): "You just can't squeeze $3 trillion of imports hard enough to get more than $2 trillion of tax revenue out of them. Like, at most that you could like, the revenue maximizing level would be somewhere around $500 billion."

Despite Trump's assertions, experts argue that the projected revenue from tariffs falls significantly short of covering the proposed tax cuts.

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6. Impact on Businesses and Inflation

The discussion shifts to the broader economic impact of tariffs on businesses and the potential for increased inflation. Erica York emphasizes the challenges businesses would face in absorbing or passing on the increased costs.

Erica York (07:35): "We look at the first Trump administration and all the tariffs that were imposed there and some of Trump's other advisors and their very serious support of this universal baseline tariff idea. I think that's where things are headed."

Kyla Scanlon highlights how these increased costs could lead to higher consumer prices, lower wages, or reduced business operations.

Kyla Scanlon (08:22): "The increased costs of doing business... end up hitting American consumers and businesses in three higher prices, lower wages, or reduced business operations."

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7. Job Creation Claims vs. Economic Reality

President Trump's claim that tariffs would incentivize companies to relocate to the U.S. and create jobs is scrutinized. Kyla Scanlon presents a counter-argument based on expert opinions.

Darian Woods (08:39): "Trump claims these tariffs will bring back U.S. jobs."

Erica York (09:15): "When they see this tariff will be like, how? How do I deal with this increased cost of doing business?"

York expresses skepticism about a domestic manufacturing surge, warning that the overall effect of broad tariffs would likely disadvantage U.S. businesses globally.

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8. Potential for Retaliatory Tariffs and Long-Term Consequences

The episode discusses the risk of retaliatory tariffs from other countries, which could further strain international trade relations and harm U.S. exports.

Kyla Scanlon (09:29): "Other countries could do retaliatory tariffs, meaning they charge US Companies taxes to import into their countries."

This retaliation could lead to a trade war, exacerbating the economic challenges faced by both consumers and businesses.

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9. Conclusion: Weighing the Costs and Benefits

Darian Woods summarizes the potential personal financial impact on average families, estimating that tariffs could cost families up to $4,000 annually.

Kyla Scanlon (09:47): "Basically, the average family could end up paying thousands more per year and higher prices."

The episode concludes with a reflection on the broader economic implications, emphasizing that the anticipated revenue from tariffs is insufficient to support the extensive tax cuts proposed by Trump.

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Key Takeaways

• Tariffs as Tax Revenue: President Trump proposes broad tariffs on imported goods to fund significant tax cuts, but experts argue that the revenue generated would be insufficient.

• Consumer Impact: The implementation of tariffs is likely to increase prices for everyday products, contributing to inflation and reducing consumer purchasing power.

• Business Challenges: U.S. businesses may face higher production costs, potentially leading to lower wages, reduced operations, or increased prices for consumers.

• Job Creation Skepticism: Claims that tariffs will lead to substantial job creation and a manufacturing boom are met with skepticism from economic experts.

• Risk of Trade Wars: Retaliatory tariffs from other countries could escalate into a trade war, further harming the U.S. economy.

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Notable Quotes with Timestamps

• Sarah McCammon (00:21): "As President elect Trump plans to take office, how will his economic policy take shape? And is what he campaigned on even possible?"

• Kyla Scanlon (01:13): "Those cookies are meant to explain trade policy because those cookies have ingredients from all over the world."

• Respondent 1 (01:52): "I think maybe people haven't read enough about tariffs and who actually pays for those tariffs in the long run."

• Erica York (07:19): "You just can't squeeze $3 trillion of imports hard enough to get more than $2 trillion of tax revenue out of them."

• Erica York (09:15): "When they see this tariff will be like, how? How do I deal with this increased cost of doing business?"

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This episode provides a comprehensive analysis of President-Elect Trump's proposed tariffs, highlighting the economic challenges and potential repercussions of such a policy. Through expert insights and relatable metaphors, the discussion underscores the complexities and risks associated with broad-based import tariffs as a funding mechanism for tax cuts.

Transcript

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[Sarah McCammon]

Hey there. It's the NPR Politics Podcast. I'm Sarah McCammon. I cover politics. And today we want to bring you some reporting from our friends at the Indicator from Planet Money. As President elect Trump plans to take office, how will his economic policy take shape? And is what he campaigned on even possible? Here's Darian Woods.

[Darian Woods]

Two big campaign promises from President Elect Trump were tax cuts and tariffs, and specifically the idea that the money generated from the tariffs will pay for the tax cuts. Joining me to discuss all this is Kyla Scanlon, economic commentator and author of in this Economy. Kyla, welcome to the show.

[Kyla Scanlon]

Thank you, Darian.

[Darian Woods]

So today you're joining us to talk about tariffs and tax cuts and cookies. That would explain these cookies, which I was told to bring into the studio. So I thought you were just being really generous.

[Economic Commentator]

No, those cookies are meant to explain trade policy because those cookies have ingredients.

[Kyla Scanlon]

From all over the world.

[Economic Commentator]

They might have cocoa beans, spices like cinnamon or vanilla. And right now, all those ingredients come in tax free. But under these new proposals from President Elect Trump, nearly everything coming into America would face big import fees.

[Darian Woods]

Now, Trump says that other countries will pay these fees and not Americans, and that we can make enough money from tariffs to cover all the tax cuts he's promising. So how is the American consumer responding to all this? Well, we surveyed some folks at a park in downtown Denver. Yeah, I think that's a really bad idea.

[Vox Populi Respondent 1]

I think maybe people haven't read enough about tariffs and who actually pays for those tariffs in the long run. And I'm thinking if we want to make any major purchases, we should do that now before January 20th.

[Vox Populi Respondent 2]

I mean, I see pluses for it and I see negatives for it, both.

[Darian Woods]

So no resounding endorsement from this vox populi in downtown Denver.

[Kyla Scanlon]

For what it's worth, those comments clock in from what I've heard from a lot of people over the last few weeks. Either they're not sure how this would work or they see it as a bad idea or even inflationary.

[Darian Woods]

So today on the show, we pull apart these cookies and we see if they'll get more expensive under the potential new tariffs or if, like Trump claims, these cookies might actually benefit the American consumer.

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[Economic Commentator]

Let's start with what we've got right now, Darian I ordered these chocolate chip cookies from a bakery in New York City and about half of the ingredients vanilla extract, cocoa beans and spices like cinnamon are imported from outside the United States. The other half, wheat, whole milk, butter, brown sugar, eggs and salt are all USA produced. Those cookies in front of you, Darian, are global cookies.

[Darian Woods]

I can see a world in these baked goods. So under President Elect Trump's proposal, those imported ingredients will taxed and that means some very nice cookies might be about to get a bit more expensive.

[Economic Commentator]

That's a general consensus among economists. A tariff is just a tax on goods from overseas. And the conventional economic wisdom is when you tax goods coming into the country, consumers end up paying more in the store.

[Darian Woods]

And most of the things we use are like these cookies, our iPhones, our coffee makers, our shoes, our clothes. They're made up of parts and materials from all over the world. So there's a worry that Trump's tariffs could make all of those things more expensive and raise inflation.

[Kyla Scanlon]

Still, Trump claims the cookies will get cheaper because other countries will potentially eat the extra cost because they really want to be competitive in the US Market.

[Darian Woods]

He also says some companies could move their operations to the US to avoid tariffs and potentially create cookie related jobs. He didn't say that specifically around cookies, but you get the joke right?

[Economic Commentator]

It's worth mentioning these cookies. As you know, Darian already have some tariff exposure baked in in 2018, the Trump administration imposed tariffs on rough 15% worth of imported goods.

[Darian Woods]

Yeah, we had Trump tariffs before on things like industrial machinery and steel, but those were targeted tariffs that Trump introduced during his first administration, not the broad, sweeping ones he's proposing now.

[Economic Commentator]

It's also worth mentioning the Biden administration kept most of those targeted tariffs in place. In fact, it even raised some of those tariffs. But what Trump is proposing now is a whole different tier. He's talked about taxing vanilla extract, cocoa beans, spices like cinnamon, and more at a rate of 10 to 20% and 60% if they're from China. And he's floated even higher numbers recently. 25% on goods from Mexico and Canada and another 10% on China.

[Darian Woods]

Yeah. And we bring a lot of stuff into the U.S. these tariffs would hit all $3 trillion worth of what we import.

[Economic Commentator]

Trump said we will raise so much money from these tariffs that we can cut all kinds of taxes. Many parts of the Tax Cuts and Jobs act is expiring soon, and according to some estimate estimates, extending it for another decade could cost as much as $5 trillion. Trump says these new tariffs will pay for that.

[Darian Woods]

And he wants to go even further than just extending those tax cuts. He wants to end taxes on tiffs, end taxes on overtime pay, end taxes on Social Security benefits, or even ending federal income tax entirely. And to help pay for this, you guessed it, it's those sweeping tariffs.

[Kyla Scanlon]

We would be putting tariffs on pretty much everything that comes into the United States. But here's the thing. Even with these massive tariffs, we still couldn't raise enough money to replace income taxes.

[Darian Woods]

Yeah. So income taxes bring in $2 trillion a year, and all those tariffs would bring in a minuscule amount by comparison.

[Kyla Scanlon]

Yeah. I spoke to Erica York. She's a senior economist and research director at the Tax Foundation.

[Erica York]

You just can't squeeze $3 trillion of imports hard enough to get more than $2 trillion of tax revenue out of them. Like, at most that you could like, the revenue maximizing level would be somewhere around $500 billion.

[Kyla Scanlon]

The upside of tariffs, even at the extreme, is going to be pretty limited. But the downside could be pretty significant. So back to the cookie again. Remember, half of its ingredients are from the US and half are foreign made ingredients.

[Darian Woods]

Yeah, the blended heritage cookie.

[Kyla Scanlon]

And this is where it gets complicated.

[Economic Commentator]

Erica says tariffs are going to increase production costs here in the US Due to the parts and ingredients we import to produce things here. For that cookie, for example, we make the butter here in the United States, but what about the feed that comes from Brazil for the US Cows who produce that US Butter.

[Erica York]

So, like materials that US Companies use in their own production processes or their capital goods and equipment, that directly increases the cost of doing business here in.

[Kyla Scanlon]

The US and those increased costs of doing business, they end up hitting American consumers and businesses in three higher prices, lower wages, or reduced business operations because the bakery is trying to cut costs anywhere it can, sometimes all three.

[Darian Woods]

Now, the other side of this is Trump claiming these tariffs will bring back U.S. jobs. Here's what he said on his recent interview with Joe Rogan.

[Vox Populi Respondent 2]

Do you tariff? It's so high that they will come and build their chip companies for nothing. In other words, Joe, you put a big tariff on the chips coming in. I say you don't have to pay the tariff. All you have to do is build your plant in the United States. We didn't have to give them the money to build a plant.

[Kyla Scanlon]

Erica doesn't think a domestic manufacturing boom will happen and says, bottom line, these broad tariffs are a recipe for disaster for US Businesses.

[Erica York]

When they see this tariff will be like, how? How do I deal with this increased cost of doing business? Am I able to pass that on to my own consumers? Can I raise my prices? Do I have to eat that cost?

[Kyla Scanlon]

She says that will put US Businesses at a competitive disadvantage on the global stage. Not to mention other countries could do retaliatory tariffs, meaning they charge US Companies attacks to import into their countries. Or they could just choose to not send their vanilla or cocoa into the US at all.

[Darian Woods]

Basically, the average family could end up paying thousands more per year and higher prices. Some estimates place it as high as $4,000. You'd have to cut taxes a lot to get back that $4,000. But Trump and his team must have run these numbers, too.

[Kyla Scanlon]

Yeah, that's what I thought. A lot of people are just hoping this is campaign smack talk, right? Like maybe it's a negotiation tactic. Erica doesn't think so.

[Erica York]

We look at the first Trump administration and all the tariffs that were imposed there and some of Trump's other advisors and their very serious support of this universal baseline tariff idea. I think that's where things are headed.

[Economic Commentator]

There are already reports of businesses and regular Americans stockpiling products from China and beyond. They're trying to prepare for these potential tariffs. Jerrian.

[Darian Woods]

Well, for now, we have cookies.

[Kyla Scanlon]

We do have cookies. And that's a good thing.

[Sarah McCammon]

That was the indicator's Darian woods in conversation with Kyla Scammon. We'll be back in your feeds Tomorrow. I'm Sarah McCammon. I cover politics. Thank you for listening to the NPR Politics podcast.

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