Nothing summarizes the nonsensical nature of the Trump administration's trade policies quite as well as some comments that Commerce Secretary Wilbur Ross made this morning.
Ross was on CNBC's Squalk Box program to discuss the White House's plan to put another 10 percent tariff on about $200 billion worth of Chinese imports. That latest volley in the trade war between the U.S. and China was announced Monday, and it's by far the largest escalation so far. (Previous rounds of tariffs targeted a total of about $50 billion in Chinese goods.) Already, China has announced plans to retaliate with more tariffs aimed at American exports.
Ross claimed this won't cause pain for American consumers. "Because it's spread over thousands and thousands of products," he declared, "nobody's gonna actually notice it at the end of the day."
Much like his boss' claim that "trade wars are good and easy to win," Ross' argument is so bad that it's almost funny. Start with the numbers. If the U.S. is going to apply a 10 percent tax—that's what tariffs are—on $200 billion of Chinese goods crossing the border, the cost to import those goods will increase by $20 billion. Whether that whole $20 billion gets passed along to consumers remains to be seen, of course, but someone is going to have to pay those import taxes.
Unlike previous rounds of tariffs that mostly targeted industrial goods and raw materials, this latest package of tariffs is aimed squarely at consumer items: computers, furniture, clothing, household goods, and so on. Trump's previous tariffs increased the prices of industrial goods; that hurts American businesses that rely on those manufacturing inputs, but there are more opportunities for the costs to be spread out along the supply chain. The newer tariffs will hit consumers harder and more directly, producing price increases for everything from computers, tablets, and video games to vacuum cleaners, furniture, and children's toys—though the Trump administration has excluded some consumer electronics and safety products like bike helmets from the planned tariffs.
But that isn't even the biggest problem with what Ross said. His argument defies common sense at a more fundamental level.
Think about how tariffs work. By making imported products more expensive, they are supposed to redirect consumer spending toward domestically produced goods or other imports not subject to tariffs. The whole point of protective tariffs is to use the government's taxation authority to change consumer behavior.
If no one notices the tariffs, as Ross says, then consumer behavior won't change. If that happened, the tariffs will not have accomplished their one and only job.
So which is it? Will consumers see higher prices and therefore behave as the Trump administration wants? Or will the tariffs have no effect on consumers, in which case they're disrupting international trade for nothing? Ross can't have it both ways.
Of course the Trump administration knows consumers will face higher costs because of these tariffs, and that reality is baked directly into the plan. The administration was originally considering a 25 percent tariff on these $250 billion of imports, but decided to set the tariff at 10 percent—until January 1, when the tariffs will increase to 25 percent.
That's a cynical move intended to do exactly one thing: to limit the effects of the tariffs on the holiday shopping season.
It's also another acknowledgment that Americans are indeed paying for the trade war. Two weeks ago, the president tweeted that prices for Apple products, such as iPhones, "may increase because of the massive Tariffs we may be imposing on China." Before that, there was the $12 billion bailout for American farmers hurt by the new trade barriers. Before that, there was the White House's own report on the tariffs, showing that they would raise prices and slow economic growth.
Yet Ross keeps trying to peddle this nonsense, with arguments that get more unbelievable the longer you think about them.
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