sTRUMPidity in taxes

April 2 (almost an April fool) was an amazing show in the Rose Garden of the White House. As to its content, it was one more example of a long collection of sTRUMPidities. It reached however a level of ignorance of how tariffs work, and mor importantly, what their impact is.

• Tariffs are paid by the importer of goods.
  This simple statement could seem obvious. Not to the current administration that continues to pretend that it is paid by foreign governments and corporations and represent an inflow of revenue for the US Government from foreign exporters.
  While tariffs are a form of taxation by the US government, they are paid by the importer, who is by definition a US Treasury. But they represent a cash outlay to the importing company. In other words, it reduces the profit margin for the corporation that will use and/or sell it.
  It is true the other way: the US government does not cash any of the tariffs levied by the foreign importer. It goes straight to the foreign government.
• Foreign trade decisions are not made by Governments.
  Whether the goods are purchased by a US company and therefore subject to tariffs is a business decision. It is made by a consumer, or an industrial or commercial entity. The purchase price is composed of three key elements: the price the exporter is able to charge, the price the importer is willing to pay and the currency in which the sale is denominated.
  Faced with an increased tariff, the importer will take the Shakespearian business decision “to buy or not to buy”. This decision is not purely defined by price: if my bottle of red wine costs the importer $ 23 instead of 20. The difference might not be affecting the consumer price by as much as $ 3. Would the exporter sell at $ 19 instead of $ 20? Would the importer agree to reduce its margin by $1? In that case, the consumer would purchase the bottle at $ 21. If the contract is in dollar and the US currency increases, the purchase price might be affected.
  What is the impact on the decision of the consumer? Your guess is as good as mine. Only some elements of the costs are under Government control.
• Trump’s comparative table was wrong.
  By mixing a series of different tariffs, taxes and duties, Donald Trump wanted to convince us that the United States was the victim of this terrible abuse of the poor and weak United States!
  First the numbers are wrong: they include elements that have nothing to do with tariffs. Apparently, the administration looped into other consumer taxes. Take the Value Added Tax that is used worldwide: it is the equivalent of a sales tax, and has nothing to do with tariffs, since it is paid directly by the consumer to his or her government. VATs are not tariffs.
  Second the numbers are lumping “country” tariffs that do simply not exist. Tariffs are based on specific goods. Car import tariffs apply only to cars and chips to chips… The percentages are simply surreal and irrelevant. Needless to say, the famous “formula” made no sense, and the rates will never apply as announced.
  Third, the biggest distortion is to look only at goods: the United States is invading the world with services that are not subject to tariffs or taxes. However, they define a balance of payments that Trump always refused to consider and often is favorable to the United States.
• War to the world
  Over 100 countries are now in a trade war initiated by the United States. Trump does not have friends, only competitors or enemies. If he does not like the current trade system, he might reflect on the alternative he is pursuing: the isolation and impoverishment of the Unted States.
  In less than three months, he antagonized the entire planet and of course expects no retaliation. This is not a zero-sum game. The biggest impact will be on the United States. sTRUMPidiy is a recipe for failure.
  There is only one certainty, the world Trump displayed does not exist.

The market reaction patently sanctions those absurd measures inspired by incompetent leadership. Retaliation is now in action…