OPINION: Trump’s corporate tax cuts and trade policies are counterproductive

Graphic by Natalie Bauer

President Donald Trump’s trade war with China and his Republican-led tax plan are the results of historical amnesia and poor education.

In the top 50 most well-educated counties with a population of at least 50,000 people, Hillary Clinton won the hearts of voters in 48 counties. Her margin of victory in 2016 improved on Barack Obama’s 2012 performance in these same 48 counties, averaging a gain of nearly nine percentage points.

Comparatively, Trump only managed to beat Clinton in two of the 50 most well-educated counties.

But, the telling statistic concerns the 50 least well-educated counties in the United States with populations of at least 50,000 people. Here, the narrative speaks to the allure of Trump’s rogue “anti-establishment” status.

In these counties, some of which are in swing states like Ohio and North Carolina, Trump bested Clinton in 47 of the 50 relevant polities. The defeat was decisive, as Trump averaged an improvement of 30 points over Mitt Romney’s performance in these same districts. In this case, the writing on the wall was clear.

The less well-educated a voter was, the more likely that voter was to favor Trump. Ironically, it’s precisely these voters who are going to suffer the most from the Republican-led tax plan and the trade war.

This isn’t surprising. Trump ran his platform on a supposedly populist ideology.

Much of his campaign rhetoric was aimed to appeal to the blue-collar worker by bemoaning corporations offshoring jobs, attacking tax-evading executives (amusingly enough), and the disintegration of the American dream at the behest of neoliberal technocrats fashioning poorly negotiated trade agreements.

Despite his ill-defined policy statements, he resonated with a base that perhaps, through no fault of their own, lacked the education to properly assess his promises.

Mostly rural voters, in this case, were beguiled not by his charming demeanor but rather by his willingness to skirt the status quo.

Yet, nearly two years into his presidency, Trump has no significant forward-looking legislative accomplishments to his name. His behavior, nonetheless, grows more embarrassing.

Perhaps the only entities growing faster than his disturbing conduct are the corporate tax breaks available to the wealthiest citizens.

The tax plan, enacted by the Republican party, permanently slashed the corporate tax rate from 35 percent to 21 percent. Yet, the $1.5 trillion cut disproportionately aids the affluent.

A report conducted by the Urban-Brookings Tax Policy Center finds that a quarter of the tax benefits will flow to the top one percent, while 66 percent will circulate to another 20 percent of high-income earners by 2025.

This is not the result Trump’s base hoped for. Still, it gets worse.

“We must not let our country, companies and workers be taken advantage of any longer,” Trump tweeted in March. “We want free, fair and SMART TRADE!”

The White House’s rationalization for the market tit-for-tat with China has been with the Asian country’s spurious trade practices concerning steel. However, the move to use tariffs as a buttress against China is foolish because most of our steel imports come from our strongest allies.

Brazil, Mexico, Canada, Germany, and South Korea export more steel to the United States. than China.

The economic posture, aimed at punishing China for overproducing the commodity and the stagnation of the American steel industry, is wrongheaded. The web of commerce societies share results in poorly distributed payback.

Of course, there are legitimate reasons to use tariffs. But, the Smoot-Hawley Tariff Act serves as a cautionary example. The act was preceded by the Fordney McCumber Act of 1922, which raised import taxes to nearly 40 percent.

But, the goal of the Smoot-Hawley act was to protect American farmers. After recovering from World War I, European farmers were outcompeting their American counterparts. Initially, the bill was foiled in 1929 by moderate Senate Republicans.

But protectionist and isolationist policies gained favor after the market crash of 1929. So, President Hoover approved the Smoot-Hawley bill despite a petition, signed by more than 1,000 economists, to veto the bill.

The move aggravated already waning economies in foreign countries and prompted retaliatory tariffs. Between 1924 and 1934, global trade declined by 66 percent as a result. To remedy the situation, President Roosevelt passed the Reciprocal Trade Act in 1934.

Eventually, the United States regained the trust of foreign markets by supporting international trade and promoting the General Agreements on Tariffs and Trade Act in 1948, The North American Free Trade Agreement in 1994, and the World Trade Organization in 1995.

Though the United States has worked to revitalize the system, the point remains clear: Tariffs are dodgy. The damage accrued easily bruises both economies and market faith. Here, Trump is encroaching on dangerous territory.

In a globalized economy, the currencies of trade are trust and cooperation. Still, the United States is being uncooperative.

As a result, our allies may return the favor by imposing their own tariffs or altogether freezing U.S. exports on commodities from unrelated sectors of the economy. So, clearly, it pays to heed the lessons of history.

In light of this discussion, it’s important to note the positive correlation between education and income. Because if the strongest predictor for whether someone voted for Clinton or Trump is education, it’s reasonable to assume that Trump supporters earn less on average.

So, ironically, the group most responsible for Trump’s ascendancy is also likely to feel the greatest impact of Trump’s trade war. The 10 percent tariff on $200 billion of Chinese imports imposed by the president are ultimately taxes paid by American businesses and consumers.

It’s simple economics. By raising taxes on input materials, the increased operational costs American businesses face reduces their profit margins. The collateral damage is sluggish wage and employment growth, which hinders retail sales and economic growth.

Plainly, it’s axiomatic that the least well-educated or the least well-off will struggle the most to absorb the increased cost of living.

There’s always winners and losers. American banks, workers, and consumers, however, fall into the latter category. It’s a matter of timing. Wages have already failed to keep pace with rising interests rates. If U.S. GDP were to slow down while unemployment rose in light of the new tariffs, it would be difficult for banks to balance their books.

It’s unclear how long the trade war will last. Regardless, Trump believes his posture will end well by changing the rules of the game. But if Washington, D.C. and Beijing fail to reach an agreement, the import tax will jump from 10 percent to 25 percent in 2019.

Trump’s next move, if Beijing decides to reciprocate the gesture, is to impose tariffs on an additional $267 billion of Chinese goods.

It’s an expensive gamble.

The smart bet, however, was less costly. And that alternative evaporated two years ago. Clearly, it pays to fact-check authorities, especially when they’re of the rogue “anti-establishment” variety.  

Christopher Salazar PZ ’20 is a double major in philosophy and classics with a minor in science, technology and society. He once laughed so hard half a french fry came out his nose.

Facebook Comments

You May Also Like