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Opinion: Raising tariffs on Chinese goods in US leads to increase in tax burden

23:05 | 31.05.2019 | Analytic

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31 May 2019. PenzaNews. The decline in the American standard of living will be a natural consequence of the new US tariffs for Chinese goods, says Ryan McMaken, Senior Editor at the Mises Institute in his article “With new tariffs, Trump hikes taxes on American small business owners, again” published in a number of foreign media.

Opinion: Raising tariffs on Chinese goods in US leads to increase in tax burden

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“Now, thanks to the President — and the Congress which ceded its taxing authority to the White House — the tax burden on all Americans is going up even more,” the article says.

According to the expert, Trump’s insistence that taxes go up will, for example, increase the price of steel and many other products, which will hurt not only the companies that “use any of these products in producing a good or service” but also retailers “whose main business is delivering retail items directly to consumers.”

In his opinion, it is important to keep in mind that taxes – or tariffs – on goods are not simply something paid by consumers.

“There is a common misconception that business owners can just ‘pass on to consumers’ higher costs. In fact, while consumers certainly bear some of the brunt of higher costs imposed by governments or other factors it is rare that any business facing competition will simply jack up prices in an amount equal to the rise in the cost of doing business, as every price hike on consumers will mean a loss of market share,” the author says.

From his point of view, the companies will scramble to economize in order to keep selling the same goods at a low price.

“This means the business owners and their families must accept a lower wage for themselves, or the business can but back on staff or cut benefits for employees. Otherwise, the business facing declining sales, which may end up leading to layoffs in any case,” Ryan McMaken explains.

“Thus, when PBS reports, ‘US retailers [must] decide between three options: absorb the cost of the tax, pass it along to consumers, or search for an alternative supplier from a country other than China,’ they’re only sort of right. Yes, business could pass the cost along to consumers, but that if usually a prescription for lost revenue,” he adds.

Meanwhile, the search for new suppliers, in his opinion, is also not a way out of the current situation.

“It’s true that businesses can attempt to replace Chinese-made goods with imports ‘from a country other than China,’ but if those other places provided goods as economically as China does, merchants would already be buying those other goods. Business owners must completely re-arrange their supply chains to deal with a completely unnecessary tax imposed by the US government,” the expert says.

Trump supporters apparently continue to imagine that high taxes “create jobs” so long as those taxes are called “tariffs,” he says.

“Naturally, a tax on foreign steel, for example, will create some steel jobs. That’s the “seen.” But what is “unseen” are all the jobs that were either lost or not created as a result of declining spending in other sectors. This is the result of every tax, including tariffs,” the expert believes, adding that according to Gary Hufbauer, a senior fellow at the Peterson Institute, the average US consumer pays a staggering 900,000 dollars for each new steel job created.

“In other words, consumers have less money to spend in the non-steel sector, and that means less job creation overall, and a declining standard of living for the overwhelming majority of consumers,” he explains.

But even this, from his point of view, won’t convince those who insist on supporting tax hikes in the name of “winning” against allegedly unfair foreign tariffs.

“The narrative they employ is one in which the administration’s tax increase are only temporary, and the new taxes will be removed just as soon as all other countries buckle under US demands and remove all their own tariffs imposed on US goods. And they’re all so sure this will happen so very soon. But just how far away is ‘soon’? One year? Five years? From the point of view of a small business, a year is a very long time when it comes to making payroll, paying the rent, and planning for the future,” the analyst says.

“The blasé and arrogant attitude of the administration and its supporters toward business owners in this regard is shocking indeed. It is essentially this: ‘you, business owners, should just accept declining income and shrinking sales for years so long as it’s in the service of Trump’s grand plan. And never mind the stagnant wages and lack of hiring that small business must impose on their workers in order to cope with the tax hikes. In the real world, though, people can’t stop paying their rent for six months or a year while the Trump administration works out its tariff strategy,” Ryan McMaken stresses.

In his opinion, the fact that American tariffs are also unpleasant for Chinese firms is swell for nationalists who are more committed to hurting the Chinese than to helping the Americans.

“But the fact remains the nationalists are cutting off their noses to spite their faces, and the empirical evidence shows it. […] Meanwhile, the Trump administration has already admitted defeat in rural America where the administration approved new subsidies to make up for the fact far revenues are down as a result of the administration’s trade war. It’s unlikely that any of this will hurt Trump politically with his base, though. Terribly economics often make great politics, and the fantasy that high taxes will make ‘America great again’ is apparently very attractive to many,” the expert concludes.

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