Trump Could Unilaterally Raise Your Taxes. Here’s How…

By Jordan LaPorta

Nothing is more frustrating than re-fighting a battle you have already won. With trade, libertarians will spend the next four years trying to reassert a fact that has been long settled: free trade is a net positive.

A Trump Administration raises many concerns for limited-government conservatives and libertarians. Unlike past Republican presidents, Trump does not seem shy about his willingness to expand the size and scope of the state. Throughout the campaign, Trump’s positions on numerous topics changed with the wind, leading many conservatives to wonder if he was playing the base. But while Trump flip-flopped on an abundance of issues, he has maintained one area of policy consistency throughout all his years in the spotlight: trade.

Trump has consistently expressed his desire to upend the free-trade consensus and return to the age of American protectionism. Since the Nineteenth Century, free-market economists have worked hard to defeat global barriers to free exchange of goods, and in 2016, most economists (even Paul Krugman) understand the value and importance of this principle.

In an analysis piece on The Washington Post‘s website, trade policy wonk Matt O’Brien assessed the likelihood that Trump’s proposals could lead to international backlash. Through his research, he found that a trade war is not outside the realm of possibility. O’Brien wrote:

First off, trade is one of the only two issues Trump really seems to care about, and has had a consistent position on…But that doesn’t seem to matter much to Trump. He views everything, even a voluntary exchange like trade, as a deal where there’s a winner and a loser. In this case, the country that sells more than it buys abroad is the victor, and the other is the vanquished. Trump, then, thinks that a trade deficit itself, more than, say, an undervalued currency, is proof enough that something must be done.

According to CNN, Trump’s team is already zeroing in on a 10 percent tariff  “aimed at spurring US manufacturing, which could be implemented via executive action or as part of a sweeping tax reform package they would push through Congress.” Renegotiating or flat-out ending the U.S.’s trade agreements is also at the top of the new president’s list of priorities.

Trump’s brand of “they took our jobs economics” is likely to become the new law of the land despite the well-established Law of Comparative Advantage. Comparative advantage explains why countries engage in international trade even when one country’s workers are more efficient at producing every single good than workers in other countries. In 1817, David Ricardo demonstrated that if two countries capable of producing two commodities engage in the free market, then each country will increase its overall consumption by exporting the good for which it has a comparative advantage while importing the other good, provided that there exist differences in labor productivity between both countries.

Related: With Trump, The GOP Has Returned to Its Protectionist Roots

But in the United States, we live in a system based on checks and balances, so surely Trump cannot act without the complicity of a doctrinaire Republican Congress. After all, the constitution is incredibly clear on the subject. Article I §8, clause 3 of the U.S. Constitution states “The Congress shall have Power To…regulate Commerce with foreign Nations.”

The supreme law of the land is fairly explicit, but case law and subsequent legislation have muddied the issue via the doctrine of “delegation of powers” from Congress to the executive branch.

Since World War I, numerous laws have expanded the president’s power to unilaterally regulate trade, mostly under the guise of “national security.” Unsurprisingly, presidents have used and abused the laws on the books to serve their own personal policy agendas and protect domestic industry.

In 1917, Congress passed the Trading With the Enemy Act, which gave the president the power to regulate all international trade and financial flows, and to freeze or seize foreign assets.  In order for the act to apply, a country need not be an actual enemy of the United States, but merely a trading partner.  President Nixon used the TWEA in 1971 to implement a 10 percent tariff in order to fend of an “economic emergency.”

Similarly, presidents also have an abundance of Cold War remnants in their arsenal, including the International Emergency Economic Powers Act of 1977. The IEEPA  allows the president to impose economic sanctions on countries, but could be widely interpreted to apply to just about anyone, and the Trade Expansion Act of 1962 gives Trump the power to raise tariffs for national security reasons. However, Trump’s most likely route to enact protectionism is through the Trade Act of 1974, which gives him the power to levy a tariff to retaliate against unfair trade practices. He can slap an import surcharge on goods faster than you can say “CHINA.”

Long story short, Trump can levy tariffs against those who supply U.S. consumers with valuable goods, and Congress cannot do a thing about it.

What often gets lost in the fray is that tariffs are indisputably taxes. The very definition of a tariff is “a tax or duty to be paid on a particular class of imports or exports.” Because people do not pay them when they check out at the grocery store or when they file with the federal government on April 15, they do not think of tariffs that way.

Conservatives understand this principle just fine when it comes to domestic businesses. They rightfully understand that companies do not pay for the cost of higher taxes and regulation – consumers do. Rather than cutting into their profit margins, businesses relay government costs onto the consumer in the form of a higher price. The same rule applies for tariffs. The goal of a tariff is to raise the price of cheaper goods produced overseas so that consumers will be incentivized by the state to buy domestic. In the end, consumers face higher prices, and the market does not truly reward the better products: it is a lose-lose.

For whatever reason, national borders seem to serve as economic blinders; once a good or service crosses an imaginary line, it is as if the laws of economics no longer apply. But nothing could be further from the truth.

So remember, the next time President-elect Trump tells you he wants to lower taxes, know that he is lying — at least about the taxes you cannot see.

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