by Peter Schiff, Schiff Gold:
While many are criticizing Trump’s travel ban put into effect this weekend, others are considering something more impactful to US interests: his tax reform bill. Last week Trump spun out several talking points surrounding his tax plan, which would “reduce our trade deficits, increase American exports and … generate revenue from Mexico that will pay for the wall,” Trump told Philadelphia lawmakers.
The ill-fated plan to cut taxes while increasing spending isn’t getting past Peter Schiff who recently criticized the President’s plan, which would ultimately hurt American businesses and consumers.
Peter makes some important points about why America can’t successfully win a trade war with Mexico. One of the reasons is because any attempt to fix trade imbalances will ultimately mean consumers pay higher prices. American voters won’t stand for it, even if Trump delivers on other promises like immigration reform.
To bolster domestic manufacturing, Trump will need to make consumer prices more competitive with imported products. It’s a problem that doesn’t work out practically. Peter explains:
“Either we’re going to pay more for Mexican products or we’re going to pay more for products that we import from other countries that are now cheaper than the Mexican products with the tariff, but are more expensive than what the Mexican products used to cost before the tariff. Even if we end up making something ourselves, we’re going to be selling it at a higher price point than when we imported it from Mexico. Americans are going to suffer. Americans are going to pay higher prices.”
In addition to Trump, the press also heard from House press secretary Sean Spicer last week. Spicer suggested the administration was considering putting a 20% tariff on all Mexican imports to finance the building of the border wall stating, “right now our country’s policy is to tax exports and let imports flow freely in, which is ridiculous.”
Spicer’s descriptions were confusing and lead some to speculate he was referring to a border adjustment tax (BAT) rather than a tariff, neither of which would avoid raising prices for businesses and consumers. While a tariff is simply a tax on imported goods, a BAT is actually a complicated restructuring of the tax codes.
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