Forget the Tariffs

Trump is right about one thing. A tariff is a tax. But it doesn’t make us rich; it makes us poor, falling mostly on our own households… not foreign countries nor big corporations.

Monday, February 17^th, 2025

Bill Bonner, writing from Baltimore, Maryland

How it brings back memories!

Back in the 1970s, as head of the National Taxpayers’ Union, we thought we could shame Congress into reducing spending by pointing out all the many wasteful, and often silly, ways the money got spent.

Highways to nowhere…’studies’ of the obvious…fraud and improper payments— millions of dollars were being wasted. But who cared? The purpose of the federal government is to transfer money from the public to the special interests. ‘Waste’ was just part of the deal.

And now the amounts are in billions and Elon is hard at work trying to eliminate ‘waste’ and ‘inefficiency’ — along with sending men to mars, boring huge holes in the ground, dominating the electric car market and doing $100 billion mergers and acquisitions.

Is he sincere? Is The Donald behind him? Or, are they both just putting on a show?

We don’t know. But it will take more than just grandstanding to change the course of history. And it will require more than a sneaky tax hike to bring deficits under control. Herewith, among other things, is what we learned 50 years ago.

“Tariffs are going to make us rich as Hell,” says Trump. Nobody believes it. Tariffs benefit select insiders with good lobbyists who are able to sell mediocre products at higher prices. In no case in history have tariffs ever made consumers better off.

And now this. Forbes:

Trump Says Value-Added Taxes Will Be Considered Tariffs

President Donald Trump said Saturday value-added taxes, taxes levied to goods during each stage of production which are widely used in Europe, will be considered tariffs as part of the reciprocal tariff plan he argues would level the playing field in global trade—though economists project they would increase inflation this year.

Huh?

The president proposes ‘reciprocal tariffs?’:

“They charge us, we charge them. It’s the same thing, and I seem to be going in that line as opposed to a flat fee tariff.”

Poor Mr. Trump… he doesn’t know where he’s going. No compass. No star to steer by. Tariffs for friends and foe. For immigration control…drug wars…foreign policy scams…25%…60%…10%… whatever.

He now says that when a foreign country taxes its citizens with VAT, he should do the same…but as a ‘tariff.’

‘Reciprocal’ sounds fair. But if King Herod decides to murder all the children of Judea, should we murder our children too, just to stay even? In the 1960s, should we have let our central planners take charge…forced Americans to do pointless work…and made them all poor-- just to keep up with the Soviet economy?

Trump is right about one thing. A tariff is a tax. But it doesn’t make us rich; it makes us poor, falling mostly on our own households… not foreign countries nor big corporations.

As we showed last week, real incomes are dropping, not rising, under the weight of 9% everyday price inflation. Even the feds’ inflation numbers show prices on the rise. CNN:

US inflation heats up to 3% for first time since June

Consumer prices rose 0.5% from December — the fastest pace since August 2023 — resulting in an annual inflation rate of 3% for the 12 months that ended in January….

“The long national nightmare of inflation isn’t over yet for consumers, businesses, and investors,” Chris Rupkey, chief economist at FwdBonds, wrote in commentary issued Wednesday morning. “There could be some seasonality that pushes prices up at a faster clip in January, but today the news for [Federal Reserve] officials is all bad.”

Further evidence comes from Bloomberg:

The share of outstanding US consumer debt that’s in delinquency rose in the fourth quarter to the highest in almost five years, according to a Federal Reserve Bank of New York report. Total household debt — which is primarily composed of mortgages, student loans, auto loans and credit-card balances — rose 0.5% to a record $18 trillion.

We’ve gotten no call from the White House. But if Mr. Trump asked for our advice, we’d give it to him straight: Forget the tariffs. What really matters is the total amount of a society’s output that is crippled, diverted, or wasted by the feds. The more the feds take…the less is left for everyone else.

The challenge is simple to understand, but hard to do: you have to reduce spending, regulations, taxes (including tariffs), and inflation…not add to them.

And don’t squander your time squabbling with federal employees or trying to root out ‘waste.’

Instead, just cut the budget. Spending must be reduced, not by a few billions here and there, but by trillions of dollars. Milei in Argentina cut government spending by 40% in his first year in office.

So much hot air and smoke coming from the DC area, but is there a burning desire to reduce the size and the reach of the federal government?

Back in the ‘70s, we might as well have been rubbing two wet sticks together. We got nowhere. Then, Ronald Reagan was elected. His budget director, David Stockman, made a valiant effort to slow spending, too. When that failed there were various rear-guard actions up to and including the Tea Party movement in this century.

But the feds won every battle. Then as now, big government makes it possible for elites to get something at others’ expense. They won’t give it up until the money runs out.

Stay tuned.

Regards,

Bill Bonner

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Research Note, by Dan Denning

There’s been an explosion of interest in social media on auditing the gold in Fort Knox over the weekend. It’s related, in some way, to the idea that an organized devaluation of the US dollar is being planned by the Trump administration. What would that mean for gold? For US government bonds? For the dollar? I’m going live with Matt Smith from Casey Research tomorrow to discuss it. Leave a comment or send in a question below. The live chat can be seen on the Substack Reader App (details tomorrow morning). A recorded version will be made available shortly thereafter.