How Trump’s tariffs would 'aggressively' transfer wealth from the poor to the rich: journalist

20 September 2024

The cornerstone of former President Donald Trump's economic agenda for a possible second term is steep tariffs on imported goods. This is ostensibly to help even the playing field for American companies, but one veteran journalist is arguing that it's a thinly veiled attempt to redistribute wealth upward from the poor to the rich.

In a recent article for the New Republic, Pulitzer Prize-winning journalist David Cay Johnston explained why tariffs are particularly harmful for the working class and a huge boon for the owner class. He made the case that tariffs are not only a form of a sales tax in that tariffs would just be passed onto consumers in the form of higher prices, but that they double as a way for business owners to "aggressively" price gouge goods with little blowback.

Johnston used the example of a car dealership (which often import vehicles from Asia and Europe) to illustrate how tariffs serve as a one-two punch to both inflict higher prices and increase profits for businesses. For the sake of simplicity, the journalist posited a scenario in which cars would sell for $10,000, with $1,000 of each sale being pocketed as profit.

"Trump says he will slap a 60 percent tariff on imported goods from China," Johnston wrote. "The dealers who sell Chinese cars in America will have to raise their prices to $16,000. If you buy a Chinese car, you will pay that tariff, not China. Indeed, the only harm to China would be selling fewer cars because the tariff would make Chinese cars too costly for many Americans."

"But remember, you own an American car company. Will you continue selling your cars for $10,000 to earn a $1,000 profit per vehicle? Not a chance," Johnston continued, noting that a fundamental practice of business in a capitalist economy is profit maximization.

"Trump’s tariff means you can raise the price of your vehicles to $16,000 and not lose any market share. However, the Trump tariff doesn’t apply to you since you are a domestic carmaker. That means you will collect not $1,000 profit per car but $7,000, all paid by your customers," he added. "But because profit maximization is your goal, you will likely undercut the Chinese car companies. To simplify the math, you would charge $15,000 for each car. That’s a large enough discount that some people who want a Chinese car will purchase your American-made car instead."

Johnston then pointed out that the $1,000 profit from each car sold would "skyrocket to $6,000," which "comes at no cost" since the business wouldn't have to hire more workers, or make additional capital investments on improving their facilities.

With imported cars costing 50% to 60% more, Johnston observed that car dealerships would instead likely invest their higher profits in hiring more auto mechanics, in order to extend the life of the cars they're still selling. He noted that this would bring in an entirely new stream of profit, as a car dealership would be able to make more money from selling spare parts and charging for mechanic services.

"Trump’s tariffs stand to make you so much money that you’d be laughing not just on your way to the bank but on your way to your megayacht, private jumbo jet, private Caribbean islands, and your many mansions," he wrote. "Now, if you think America’s problem is that the rich don’t have nearly enough—well, please vote for Donald Trump."

Click here to read Johnston's article in full.

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