A New Era is Emerging

April 2nd, 2025. This date could very well have historical significance to our future selves and future generations. In Trump's world, this was Liberation Day! This was the day where the world was going to bend the knee and we were going to stop getting 'ripped off!' For the rest of us who are actually educated and are affected by the policies concocted by our billionaire oligarchs, this day could be seen in the same light as the Smoot-Hawley tariff act that was implemented in 1930 during the Great Depression. This could be the day where the balance of power between all developed countries on this planet shift.

I'm not going to rehash 'what is a tariff?' or 'who pays the tariff?' as I'm sure you've seen hundreds of articles about those same subjects at this point. But what is the ultimate purpose of these tariffs? A trade policy that no one wants and has more downside than upside, what could possibly be the point of all of this? There seems to be two different goals with this policy. If you believe Trump (which is tough to do) and take his word at face value, he wants to bring back manufacturing and industry to the United States and close trade gaps. If you value my opinion and thoughts on the subject (which I hope is a little less tough to do?) I believe this all comes back to tax cuts.

But let's start with what our King has said to the public sphere and take it at face value. The purpose of these tariffs is to shift the incentive structure for companies who manufacture goods abroad and sell them to the U.S. By slapping a direct surcharge on every good exported by another country, it could incentivize companies to move their manufacturing capabilities here and sell their goods directly to U.S. consumers. It could also incentivize new U.S. based entrants to enter these markets. New entrants can compete directly with companies who are manufacturing goods abroad and undercut them on price because they would not be subject to the tariff.

Pundits also see these tariffs as just Trump's negotiation tactics - he's not actually serious, it's just a threat so you do what he says. Which may be true. Trump is a 'deal maker,' but a deal maker more akin to your toxic ex-boyfriend who gaslights you into believing everything is your fault and you should get back together. The goal is ultimately the same - If you can bring back manufacturing, you can create more jobs, and we can make America great again baby! Wahoo!

There's just one problem with this approach. These are tariffs on all products, on all countries, affecting every industry. We cannot manufacture every good that ever exists in the United States. Listen, this country is beautiful and is abundant in natural resources. We also have very talented people who live here. But we cannot produce enough coffee beans to satisfy our caffeine demand. We cannot produce enough avocados, grains, rice, and various vegtables to satisfy our food demand. We cannot mine enough copper, aluminum, lithium, and uranium to even come close to the level of demand we have. You can go industry by industry, product by product, and realize there is a reason we do not produce these goods in this country.

The world recogonized this DECADES ago - every country has a specialization and an advantage in producing specific goods in enough supply and at price points that make it affordable for everyone else to purchase. The world can have clothing at (relatively) affordable prices because we can produce an abundant amount of cotton in the warm climate of India and ship it everywhere else. This is why we established the World Trade Organization. This is why we established trade deals. This is why we have actively removed trade barries that have helped increase the living standards for billions of people in countries all over the world. The United States does not have to be the beneficiary of every single trade deal, this is not a zero-sum-game. People in other countries deserve the opportunity to contribute to the global economy and improve their own lives in the process.

As he stood there in the Rose Garden holding up his little board claiming that all these countries have placed tariffs on us, so we're tariffing them back, the entire internet asked 'where are you getting these numbers?' As it turns out, all they are doing is taking the trade balance for a specifc country and dividing it by the total amount we import from them. Take that number and divide it in half and you come to the level of the tariff.

So China, for example, had a net trade balance of $295.4B, and we imported $438.9B from them. 295.4 divided by 438.9 is the 67% 'trade barrier' in question. Divide that 67 in half, and that's where the 34% tariff is coming from (they round up, by the way). He's not even targeting trade barriers, he's simply targeting trade deficits. The countries that don't even have a trade deficit, and sometimes we even have a trade surplus? 10% tariff.

The United States is the 'richest' country in the world, and we dominate a lot of other indstrusies, but sometimes it just makes more sense to buy from our friends and neighbors when they can produce more at more competitive prices:

There are legitimate critiques that we can, and should have, on globalization. There are legitimate critiques that we can, and should have, on how foreign governments have committed unfair practices to dominate industries and put other countries out of business in certain sectors. There are legitimate critiques that we can, and should have, on how globalization affected millions of people in certain sectors in the United States. I will dedicate an entire blog post to breaking that argument down one day. But it's nuanced, the world is not binary, and universal tariffs are not the answer.

Now, for what you've all been waiting for! What is my opinion on what the actual purpose of these tariffs are? You are going to hear me talk a lot about this in my writing, and I'm sorry I'm not sorry. But, I believe this administration is trying to use these tariffs to fund the tax cuts that will continue to enrich our billionaire and oligarch overlords. Hear me out:

The Tax Foundation has done a lot of research and analysis to see what the affect of making the Tax Cuts and Jobs Act (the 2017 tax law passed in Trump's first term) permanent. Tax law is measured over 10 year periods. They estimate that GDP will increase by 1.1%, wages will increase by 0.5%, and the economy may add 847,000 jobs. However, the budget deficit will increase by $4.5 trillion. This will result in the government borrowing $4.5 trillion over the next 10 years to make up for the loss in revenue. Issuing that many treasuries will push up the interest rates on those bonds. The Tax Foundation estimates the increase in yields could increase our interest cost on our debt by $941 billion. Bringing the total cost of these tax cuts to $5.4 trillion over the next 10 years. This number INCLUDES the offset of economic growth expected over the next 10 years. There are a number of firms who have done similar analysis with varying degrees of assumptions. But the general consensus is this will increase the debt by $4.5 trillion over 10 years, so I'll use that number moving forward.

Who are these tax cuts benefiting?

Tax cuts in percentage terms, provided by the Tax Foundation.

Tax cuts in dollar terms, provided by Yale University.

The administration and congressional republicans are also attempting to fill this gap in revenue with spending cuts upwards of $1.7 trillion. The Federal government spent $6.75 trillion in fiscal year 2024. This spending is divided up between mandatory and discretionary. Spending related to Social Security, Healthcare, National Defense, and Income payments on outstanding debt accounted for about 70% of the budget, or $4.7 trillion. If you're interested, here's a fun interactive map to see how everything breaks down into sub catagories - though, this includes amounts we've promised to pay but have not paid yet so the total is higher.

Assuming we don't touch those four categories of spending, we virtually have to cut everything else to reach $1.7 trillion. Every single government agency. Every single social program that supports veterans and children. FDIC insurance, police departments, fire departments, research grants for new technologies, protections over federal lands, public news sources like PBS and NPR, protections over our national parks, protections and regulations over our food and water supply. All gone. Alternatively, we cut Social Security or Medicaid and send tens of millions of people into poverty, because we certainly are not cutting the military budget, and unless we want to default on our debt, we have to pay our interest.

Which brings me back to tariffs. We have a $4.5 trillion budget deficit, offset by $1.7 trillion in spending cuts. That leaves a gap of $2.8 trillion over 10 years. Trump has said repeatedly that 'the other country pays the tariffs' and that 'we used to fund our entire government through tariffs.' Not only is this misleading, but it's just wrong and lacks a lot of context (alternatively, it's an extremely cherry-picked view of the history of this country, but they would never do that!) You pay the tariff. I pay the tariff. Every consumer in the United States pays the tariff. It's essentially just a sales tax on every good imported into this country. The price increases and revenue collected from your purchases go directly to funding tax cuts for billionaires. It's that simple.

Assuming an effective universal tariff rate of 20%, which coincidentally is where we are today (even given the higher rates on a few countries), the Tax Foundation estimates this would generate $2.8 trillion in revenue over 10 years. This factors in an 85% compliance rate, various income tax offsets, and assumes economic growth takes a hit because new trade barriers cause a decrease in trade. This also assumes not a single country retaliates and deteriotes growth further. Which we already know not to be true. So lets add it all together:

1. Make tax cuts for billionaires and companies permanent, creating a $4.5 trillion budget gap based on EXTREMELY optimistic economic growth projections, and ignore any increase in the cost of our debt which could make this number higher.

2. Partially fund this budget gap by cutting $1.7 trillion in government spending, which either cuts spending to social security and healthcare, or eliminates virtually every other program and agency the federal government supports.

3. Make up the remaining gap by placing a 20% tariff on every country we have a trade gap with, which includes both our allies and countries we don't have a trade gap with. Secondarily, begin deteriorating any goodwill and positive reputation we have left. Tertiarily, drive up yields on our debt if foreign buyers and governments decide to stop buying treasuries in protest.

4. Gaslight the entire American population to believe the tariff is paid by these countries, when in fact, it's paid by American citizens.

   1. This step is important because the increase in the cost of all goods, and the loss of every social program, more than offsets any crumb of a tax cut the American people have been promised up until this point. We can't let them believe this is Trump's fault!

5. Crash the global economy and let your billionaire friends with unlimited resources and even lower tax rates purchase the scraps of assets left over, thus exacerbating income and wealth inequality to levels not seen in the history of capitalism.

That last point might be a little dramatic. But it also might not be. Economists and Investors alike thought he wasn't serious about tariffs, yet here we are. The one thing I haven't mentioned? There are proposals to not only extend the TCJA, but lower taxes on the wealthy and corporations by an additional $1.5 trillion. All of this shakey math required to give tax cuts to billionaires, and we'll increase the deficit anyways. We're speedrunning the bankruptcy of America. But what else did we expect from the business man who can't run a successful ~LEGITIMATE~ business.

I have spent a lot of time wondering how the economy has remained so resilient in the face of massive income and wealth inequality. It feels like more and more of us are struggling to get by with every year that passes. The first explanation is that the fiscal support and the social programs that we already have are supporting us way more than we think, even if it simultaneously doesn't feel like it's enough (because it's not). The other explanation is more sobering:

For the first time in decades, the top 10% of income earners in this country make up 50% of personal spending. In an economy that's mainly supported by consumer spending, this is not sustainable. At what point does capitalism break? At what point are there not enough people spending enough money? At what point do the wealthy among us decide to stop spending?

Luckily, their spending is tied to their wealth, and their wealth is tied to the stock market. As long as that keeps going up, we'll all be fine, right?