Trump Proposes Tax Hike for Millions of Americans. Markets Plunge

“Trump Proposes Tax Hike for Millions of Americans. Markets Plunge.”

Did you catch this headline this morning?

You did not, of course.

We spun it from the whole cloth.

But it may as well be authentic.

Details to follow.

First the news…

The Trump administration proposed a weighty 25% tariff on steel imports yesterday.

Aluminum imports must pay a 10% entry fee.

The tariff could potentially apply to all nations that supply America’s steel and aluminum — not just China.

Among these are Canada, South Korea, Mexico, Germany, Japan and Brazil.

All of which export more steel to the U.S. than China…

All of which are American allies…

And all of which will likely retaliate.

The news frightened the horses terribly… like the sudden blast of a cannon on a still morning.

The Dow dropped 420 points on the sharp prospects of a global trade war.

Why did the president do it?

American steel and aluminum producers have been pushed to the wall by foreign competitors, he argues.

The tariffs will give them a lifeline… an anchor against oblivion:

People have no idea how badly our country has been treated by other countries… They’ve destroyed the steel industry, they’ve destroyed the aluminum industry and other industries, frankly… We’re bringing it all back.

We don’t question the man’s intentions.

We’re sure he’s heart and soul for American steel, American aluminum… American labor.

Nor do we malign Trump’s politics — did he not rise to office on a pledge to raise tariffs?

And did he not carry Pennsylvania, Ohio and Michigan?

We question only his wisdom… his willingness to think things through.

The president must have misplaced his copy of Economics in One Lesson by Henry Hazlitt.

From which:

This is the persistent tendency of men to see only the immediate effects of a given policy, or its effects only on a special group, and to neglect to inquire what the long-run effects of that policy will be not only on that special group but on all groups…

The bad economist sees only what immediately strikes the eye; the good economist also looks beyond… The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.

Hazlitt’s is a faint and feeble voice coming from the tomb.

There is the seen, it struggles to say above the din of the living… but you must also consider the unseen…

We will see the president break the ground of a new steel plant, yes.

We will see him scissor the ribbon when its doors open for business.

We will see him shake the happy hands of the newly industrious.

Here is what we will not see…

The businesses that won’t open or won’t expand because the inputs of industry are now costlier…

The money Americans won’t have to spend on other goods and services because they’re spending more on goods with steel and aluminum…

The American products that will go unsold abroad because of the tariffs foreign competitors throw up in retaliation.

These… alas… we will not see.

They are nonetheless real.

It is true that one door may open for the producer of aluminum.

But another will close for the maker of canned items.

Another door may open for the steel producer.

But another slams on the auto salesman who must charge more for his product.

For every extra dollar that jingles in the one fellow’s pocket… one less dollar jingles in the other fellow’s pocket.

He will see his pay envelope shrink — in effect, his taxes raised.

Many forget that George W. Bush also raised steel tariffs.

The results?

One study concluded they cost Americans 200,000 jobs — including 11,000 in Ohio… 10,000 in Michigan… 8,000 in Pennsylvania.

But “very few of us taste the tariff in our sugar,” as another president, Woodrow Wilson, once said in reference to the sugar tariff.

Few ask the right questions… connect the proper dots… draw the right conclusions.

Heave 100 bricks off a rooftop in any American city.

Not one will fall upon a man who blames tariffs for his idleness.

And that is how the political men prefer it.

The seen — the new steel plant — blinds us to the unseen:

The lost jobs elsewhere, the money unspent on other goods, the cost of retaliatory tariffs.

We therefore conclude the proposed tariffs will benefit few. And harm many.

We cannot get in back of them.

Let us instead turn our focus to the unseen, as a wise voice beyond the grave whispers.

It is here, in the unseen, that we will see the light…


Brian Maher
Managing editor, The Daily Reckoning

The Daily Reckoning