Tariffs - Who Pays?

Tariffs are paid by importers when the goods imported cross the border into the nation that has established the tariff. They are primarily a tax on consumption. Nations cannot make other nations pay taxes. They can only tax people and businesses resident in their nation.

Who bears the cost of tariffs levied on traded goods is a different issue. As economists like to say, “It depends…”.

Importers of consumer goods are often retailers or their agents. If they cannot absorb the additional cost of the tariffs, which is unlikely, they will have to pass most of the cost on in price increases to consumers. If consumers still want the good, they will have to pay the higher price.

Importers of capital and intermediate goods will usually be manufacturers, or their agents. They will have to pay the tariff on the goods when they cross the border. Unless they can absorb the cost, they will need to pass the additional cost on to retailers, and eventually to consumers.

Changes in prices affect the demand for goods. If consumers have a strong preference for a particular good, they will have no choice but to pay the higher price. This makes them worse off, however, because they will have less money to spend on other goods.

If consumers are not fussy about what they consume, they might be able to switch to an alternative good that is not subject to the tariff, but still meets their needs. However, they will still be worse off because they have been forced to shift to a product that was not previously their first choice, presumably because they did not think it was as good.

If people are forced to switch from an imported product, to a locally produced product, it is likely to be more expensive than the imported good that they used to buy. It is likely to be poorer quality relative to price. For example, if Americans are forced to switch from Chinese or Japanese-manufactured autos to American-produced ones, the quality might be poorer and the price higher. This makes them worse off, even if American manufacturers and workers benefit.

Some manufacturers of foreign manufactured goods might choose to reduce their prices to absorb the cost of the tariff in order to maintain their market share. There will be a limit to how much they can do this if their profit margins are tight. To the extent that they do choose to reduce their prices, some of the cost of the tariffs falls on them. This will reduce their profits.

If a manufacturer is unable to reduce the price sufficiently to maintain market share, they will sell less product, which will reduce their profits, unless they can quickly find alternative markets for their products.

Putting it simply:

• If buyers are indifferent to price, then buyers pay the tariffs.
• If buyers are highly sensitive to price, then sellers sell less and receive less revenue per unit sold.

However, in economics, nothing is ever simple.

Exchange Rates
The introduction of tariffs can have a significant effect on exchange rates. When Donald Trump introduced his tariffs many economists assumed that this would strengthen the US dollar. This would have the effect of making imports cheaper and exports more expensive, which counteracts the effect of the tariffs. A strong increase in the US dollar would cancel out the impact of the tariffs and prevent any price inflation.

In reality, the opposite has happened. The US dollar depreciated against the currencies of its major trading partners. This actually amplifies the effect of the tariffs by pushing up prices for increased inflation. As some economists have pointed out, allowing the US dollar to depreciate would have had a similar effect as the Trump tariffs, but it would have been more widespread.

Inflation
Inflation is a problem for most modern economies. An increase in prices caused by the imposition of tariffs might bring an increase in inflation. The Federal Reserve might need to push up interest rates to keep inflation under control. This would make people worse off and might slow the economy.

World Economy
The introduction of large tariffs can create uncertainty and disrupt world trade. The reduction of specialisation could undermine efficiency and push up the costs of economic production. If the disruption to trade is serious the world economy could go into decline. This would make everyone worse off, although the effects would be uneven.

Lazy Trump?

In my previous post, I suggested that Donald Trump is lazy. In this post I explain what I meant.

Donald Trump puts a lot of energy into things that he likes doing but neglects many important aspects of his job. The US presidency is a massive job, probably more than one person can do, even if the person is incredibly fit and energetic. It is unlikely that any eighty-year old will struggle to keep up.

A president has four important things to do.

1. Collect and analyse information about the issues about which he will have to make decisions.
2. Make decisions about key issues the nation is facing.
3. Communicate the decision effectively when it has been made.
4. Ensure that the decision is implemented. This is the hard part.

On top of this the president must campaign for the next election.

1. Trump does not do the first task very well. He obviously has plenty of advisors, but it seems that he is not keen about reading briefing papers prepared for him. I suspect he assumes that he already knows all that he needs to know. Consequently, he often makes bad decisions, because he did not understand the issue sufficiently well.

2. Trump is decisive when making decisions. And when his decisions are wrong, he corrects them, but it would be better if he got the decision right in the first place.

3. Trump is extremely good at communicating his decisions. The problem is that God can speak and it comes to be, but humans cannot speak things into being.

4. A president must rely on his team to implement the decisions that he has made. Trump has some very skilled people on his team, but they are people with strong views about what should be done, so they often will try to implement their own plans. Presidents have to be very active to ensure that their team implements their decisions.

   This is where Trump is lazy. He does not ensure that the team he has appointed carry out his decision. This was a problem in his first term. He negotiated a ground breaking agreement with North Korea, but then allowed John Bolton to undermine it and that agreement was never implemented. This problem will continue to undermine the effectiveness of his presidency.

Donald Trump and Daniel (4) Broken and Discarded

Donald Trump will have a dazzling rise like a bright shining shooting star, but will fade quickly and disappear. After several fiascos resulting from the overuse of international power that he does not have, he will be broken by failure.

Donald Trump will discover that he has immense power over the federal bureaucracy (great power in the nation) but that his power to control the nations of the world has evaporated. Too many bad economic decisions and the failure of too many foolish international adventures will shatter him. Trump will be a broken man, destroyed by the shame of failure. Like Nebuchadnezzar, he will collapse at the peak of his power (Dan 4).

Trump will be pushed aside by the powerful men who surround him. His VP will probably pushed out too. He has empowered these men, but they will disempower him.

Broken Trump will be succeeded by a despicable person, who will use the power techniques that his predecessor has developed to exercise immense power and control over the American nation. People who are scared of Donald Trump will applaud his collapse and embrace his successor, but this is a mistake, because they will be deceived into welcoming their betrayer.

A despised person will stand in his place (Dan 11:21a).

The people who dislike Donald Trump will praise his successor, but they will be surprised when he lasts longer and uses the power that Donald Trump has released to develop immense executive power. He might seem to be good at first, but according to Daniel, he will be around for a long time and will do great evil.

Donald Trump will only last for a short time, but is important, because he will open the way for another ruler more successful. The second ruler will use the same methods as Donald Trump to massively expand presidential power. He will do far more harm, because his power will last much longer.

The ruler who replaces Donald Trump will be dishonest from the start.

A despised person will stand in his place, to whom they had not given the respect of the kingdom: but he will come without warning and seize the kingdom by intrigue (Dan 11:21).

When he gains his place, this ruler will not have the respect of many in his nation. Some will recognise that he will be a despicable person and assume that he will not gain power, but he will engage in intrigue and seize control of his nation.

Once he gains power, this ruler is successful against strong opposition.

The forces of the overwhelmer will be overwhelmed before him; they will be broken (Dan 11:22).

Stated literally, this verse says that "overwhelming forces will be overwhelmed". Or a deluge of forces will be deluged. There is no reference to the King of the South, so the expression "overwhelmer" could have a different more local meaning. A perceived threat to the United States at the current time is the millions of refugees from Latin America who are travelling through Mexico and sneaking across the southern border into the southern states. So many were coming that they have been "overwhelming" the border control forces. Associated with this overwhelming flood of people is a flow of illicit drugs that are destroying the youth of America.

To distract the people of his nation from the pain of his losses overseas, the despicable ruler might attack Mexico to once and for all close the border to the overwhelming flood of people who are crossing every night and the flow of drugs that are striking the heart of his nation. Daniel might be warning that Mexico will be broken when the United States invades to secure its border and overwhelming flow of people and drugs.

Daniel also explains that

A commander of the covenant will be destroyed (Dan 11:22).

The despicable ruler will destroy a key military leader in Israel.

The full series can be read on Substack.

Donald Trump and Daniel (3) Limited Power

Donald Trump is not a good man, but he is arrogant and easily sidetracked, so he will not personally deliver as much harm as people fear. He loves power, but he does not have the wisdom needed to use it effectively. One reason he will fail is that he has vastly over-estimated his power over the nations of the world.

Trump’s big problem is that he understands presidential power, but he vastly over-estimates the power of the United States. He assumes that the nations of the world fear the military and economic power of his nation, but he does not understand that the nations no longer fear his nation’s power. He does not understand that American power is crumbling around him.

Donald Trump believes that he controls the greatest military in the world, but he forgets that the recent military efforts of his nation have ended in failure. The United States had to retreat from Afghanistan in embarrassment. The US proxy war against Russia is ending in defeat. The US efforts to subdue Yemen with a destructive bombing campaign has ended in an embarrassing failure (two F18s falling off an aircraft carrier is a sign). Too many unsuccessful military adventures and the economic boondoggles of the weapons industry have severely weakened the American military.

Donald Trump does not seem to understand that financialization and deliberate de-industrialisation by American financial leaders have massively undermined the strength of the US economy. America is no longer the great innovator. nor is it the world’s manufacturer. American industrial power has been destroyed along with many communities that depended on it. Imposing tariffs on imports will not instantly restore production in the United States. Donald Trump will not be able to restore US industrial strength, despite his many promises. A trade war may damage his perceived enemies, but it will also harm the United States.

Donald Trump has always been a bully. That worked in the business world that he came from because he could intimidate his opposition, while buying the support that he needed. He could use lawyers to do the bullying, while he pretended to be the nice guy coming to the rescue those they had beat down. Bullying might work against weaker nations, like Panama, Colombia, and perhaps even Mexico, Iran and Canada. However, when he tries to bully stronger nations like the UK, Germany, Russia and China, they will push back and he will have to make an embarrassing retreat.

Donald Trump’s attempts to bring peace in the Middle East will end in failure. Giving impunity to Israeli bullying will result in the destruction of thousands of lives. His support for Israeli bullying will undermine his credibility in the world when the ugliness of the Israeli heart is exposed. Trump will be accused of supporting and equipping a genocide in Gaza.

The blustering bully will be crippled by failure and disappointment.

Donald Trump and Daniel (2) Surprise

Many Christians are upset by the actions of Donald Trump’s presidency, but I believe that Donald Trump will burn out quickly. Unfortunately, the power he has accumulated will not disappear when moves from office, but will still be in place, waiting for a successor to pick it up.

The most dangerous thing that Donald Trump will do is show the way for a younger successor who will exercise immense executive authority to gain dictatorial power. The real danger for the nation and the world is not Donald Trump, but a successor, who will learn to use power in the same way as the Trump administration has been exercising it. His power will be greater, because he will hold it for much longer.

I have been studying Daniel 11 for several years as it seems to describe the season we are living through: the climax of government power. More detail can be found in All Whats Going On. If my interpretation of this chapter is correct, Daniel describes a strong ruler emerging in the western world following a series of tumultuous events. Donald Trump is a key person in a transition to autocratic power.

The ruler who precedes him became obsessed with the “borderlands” (Ukraine)

He will turn his attention to the coastlands and will seize many of them (Dan 11:18).

This is a good description of Joe Biden.

So he will turn his back face toward the strongholds in own land, but he will stumble and fall and not be found (Dan 11:19).

He stumbles and falls, and then disappears from the stage. This is what happened to President Biden.

Daniel describes the ruler who emerges in his place (Dan 11:20).

He stands in his place and sends an extractor of tribute for the glory of his kingdom (Dan 11:20a).

This ruler sends out a tax collector. There was no income tax in Daniel’s time, so kings raised money by levying tariffs and duties on trade and by imposing the payment of tribute on other kings. The tariffs on imports and the sanctions being imposed by the US on various nations could be a fulfilment of this prophecy.

The United States has imposed more sanctions and tariffs than any other nation. It has destroyed numerous nations using economic sanctions, including Syria, Iraq, Iran and Libya.

Daniel explains that this king engages in "trade war" for the “glory of his kingdom”. This sounds like “Make America Great Again”. Using tariffs and sanctions to restore American power points to the second term of President Donald Trump.

This transitional ruler is powerful, but Daniel explains that within a short time, he will be broken.

In a few years, he will be broken, yet not in anger or in battle (Dan 11:20b).

If this is a reference to Donald Trump, it suggests that he will have great power, but it will not last long. Daniel explains that he will rise fast, but fizzle out. He will be broken, but not by war or plague.

Many Christian leaders are concerned that Donald Trump is undermining democracy and will become a permanent dictator. The reality is that he is too old and lazy to become a dictator (wielding autocratic power is a young man’s game). I believe that he will not last long enough to become a real dictator. His administration has started with a hiss and a roar, but Trump does not have the energy to sustain it, especially when the opposition to policies builds up.

I will explain how this could happen in my next post.

Donald Trump and Daniel (1) Source of Power

If we want to understand what is happening in the world, we need to understand the source of the immense power being exercised by Donald Trump. He is simply making very effective use the power that was accumulated by his predecessors.

Most recent presidents have struggled with power. GW Bush struck out in a war on terror, but his efforts failed. Barack Obama tried to bring change, he never mastered the power needed to bring change. Joe Biden was too intellectually deficient to control it; instead, his senior aides controlled him. Donald Trump was steam-rolled by the bureaucracy during his first term as president. The president of the United States has enormous power, but during most recent presidencies it has lain dormant and under-used.

Now Donald Trump has come back to the White House with a new understanding of presidential power and has gathered people around him who have worked out how power works. Trump is now using his executive power to accomplish his agenda (I don’t agree with much of his agenda, but this is not about that).

Many Christians are afraid of what is happening. Some say that Trump is evil. Others say that he is dictator. They might be partly right, but these ideas do not explain what is happening in the United States.

The reality that needs to be understood is that the US constitution and decisions by Congress give the president enormous powers that until now have not been fully used. Donald Trump has not had to discard the constitution to achieve massive power. Article II of the US Constitution says that “Executive power shall be vested in the President of the United States.” This gives the president control of the federal executive. This entrusted immense power to the president, especially at a time when the federal bureaucracy has grown very large.

In addition, political change has removed many of the constraints on presidential power established by the framers of the Constitution. They went to extraordinary lengths to achieve a dynamic, self-adjusting balance of power between three equal branches of government. In theory, the “executive” branch executes the will of Congress, as expressed through legislation that Congress alone can introduce and pass.

In practice, members of congress have handed much of their power over to the president. For example, the constitution gives congress control over taxes and appropriations, but it has largely abrogated this responsibility by passing omnibus spending bills that no one understands or controls. Congress also has the authority to declare wars, but it has also abrogated this authority by giving presidents a general authority to engage in wars.

Congress has given the president powers to act independently during an “emergency”. So by declaring a “fentanyl emergency” to be a public health emergency, Trump has been able to impose tariffs on Canada and Mexico without Congressional approval. Trump and Biden both sent finance and weapons to Israel without congressional agreement using “emergency powers”. All that was necessary was for the Secretary of State to declare that it was an “emergency”. Rubio and Blinken both used this loophole. Congress is unlikely to take back the power that it has given to the presidency.

In 1977, Congress passed the International Emergency Economic Powers Act which grants the President broad authority to regulate international economic transactions following a declaration of a national emergency. This authority is triggered by a declaration of national emergency related to an unusual and extraordinary threat with a foreign source. Trump has declared that the US trade deficit is an emergency created by foreign actors taking advantage of the openness of the US economy. This gives him authority to apply tariffs and other controls on world trade without getting permission from the congress.

The Supreme Court is supposed to have independent control over the power of the president, but for most of the twentieth century, the courts supported changes that increased presidential power. The court has recently become more conservative, but it has very little to hold back presidential power. A few lower-court judges have attempted to put a hold on some of Trump’s executive orders, but it is quite likely that these attempts will be overturned on appeal.

Donald Trump is not seizing power illegally. He is just using the power that has been given to him by the Constitution and Congress, which previous presidents have not had the ability or energy to use effectively. Raising alarm at Donald Trump’s use of executive power is probably wasted energy, because the power that he is exercising was given to him by the constitution and the congress.

Vinnie Rotondaro explains how this has happened.

The central truth we keep missing — especially on the left — is that Trump is not an aberration. He’s a grotesque continuation. The playbook he uses was written by both parties over decades of eroding democratic norms, consolidating executive power, and circumventing meaningful checks on authority. Trump didn’t invent the impulse to rule by fiat; he just brings it out into the open.

If we want to stop the next Trump, or the next expansion of executive lawlessness, we can’t keep pretending he came out of nowhere. The removal of checks and balances didn’t happen overnight. It was built incrementally, piece by piece, under the banner of national security — with the cooperation and silence of the same liberal establishment that now acts scandalized by Trump’s every defiance.

Trump exposes the tools others helped create. He strips them of their moral veneer, revealing the ugly core. And rather than confront the system itself, liberals point at Trump as a singular villain — as if everything was working just fine before he came along.

The truth is harder to face: If we want to stop the next Trump, or the next expansion of executive lawlessness, we can’t keep pretending he came out of nowhere. We need to reckon with the fact that our democracy has been undermined from within — by both parties, for years. We need to challenge not just the man, but the machine.

I will explain why this is important in my next post.