Trump's '0% income tax with tariffs' combines high tariffs with blocking Mexican immigration and Chinese automobiles
US President-elect Trump is building a system that combines foreign policy and strengthening the reserve currency with the Republican tax cut strategy of '0% domestic tax cut income tax' with the 'power of tariffs' in the 'replacement of income tax with tariffs' policy.
Trump said throughout the election campaign that tariffs are "the most beautiful word in the dictionary" and pledged to transform international relations into a 'high tariff dominance system' with the 'dollar reserve currency' and to apply high tariffs to block Mexican immigration and Chinese automobile inflow.
At a campaign rally in Mosinee, Wisconsin, where he had gained momentum on the 9th of last month, Trump said, "We will maintain the US dollar, which is under serious siege, as the world's reserve currency," and said to countries that stop using the dollar, "You will not be able to trade with the United States (without using the dollar) because we will impose a 100% tariff on your products." Bloomberg reported at the time that "Trump and his economic advisers have been discussing for months how to 'punish' countries that try to use other currencies instead of dollars in trade settlements," and that "he mentioned high tariffs among retaliatory options such as export controls, currency manipulator designations, and tariffs." The New York Times reported on the 7th that "President-elect Trump has professed his belief in the power of tariffs for decades, and now, as he prepares to take office, it has become a central part of his economic plan." "The president argues that high tariffs on foreign goods will help American manufacturing and create jobs, and his proposal would raise tariffs to levels not seen in generations."
The Trump administration's plan to impose high tariffs appeared as a list of tariffs on the campaign trail.
Candidate Trump has talked about imposing a "universal" tariff of 10% to 20% on most foreign products, but has proposed a "tariff of 60% or more" on Chinese products.
He has called for the current trade relationship with China to be a permanent system. He proposed to eliminate it, and thus announced an ‘immediate increase’ in tariffs on Chinese imports.
The core of the Trump administration’s trade policy has been the ‘reciprocal’ tariff concept, in which the US matches the tariff rates it imposes on American products for submissive friendly countries.
The core of Trump’s tariff punitive policy is the ‘replacement of income taxes with tariff revenues’ strategy, and through this, he has applied the Republican-style tax cut policy of ‘0% income tax’ to the extreme.
In a meeting with Republican House members in June, he said, “I want to raise tariffs,” and the attendee, Georgia Republican House Representative Marjorie Taylor Greene, said, “I will potentially lower the income tax on Americans to zero.”
The New York Times reported on the meeting that day, saying, “Everyone in the room was applauding,” and “He said, ‘If you’re going to vote on something today, vote for lowering taxes on Americans. ’” Trump’s response to the 0% income tax election strategy was reported on July 17.
The Republican Party’s long-standing strategy Tariffs and tax cuts have been at the center of Trump’s economic thinking since his first term as president.
Now, the aggressive approach he has taken since his election campaign, which was to impose a 10% tariff on all imports and a 60% tariff on Chinese products, is being combined with another key pledge of his election campaign, the policy of “deporting immigrants.”
The New York Times predicted that Trump’s aggressive tariff policy would be concretized as a “strategy to block the influx of immigrants” by threatening to impose tariffs of 100%, 200%, and even 1,000% on Mexico.
The simultaneous application of tariff policies in the strategy of cutting taxes on Americans and blocking the influx of immigrants and Chinese cars from Mexico, which are the biggest political agendas of American conservatives, was repeated by Trump throughout his campaign that “we must do more to block Mexican immigration and Chinese cars.”
Tariff policy has been a long-standing issue of contention between the Democratic and Republican parties in the United States. Trump and his supporters have argued that a mix of tariffs and tax cuts would boost American business and manufacturing, create jobs, and benefit working-class Americans.
The strategy was presented in this election as a countermeasure to the Republican Party’s long-standing strategy of tax cuts, such as the income tax, which saw tariffs on foreign products as a lucrative source of revenue.
Robert Lighthizer, who served as Trump’s chief trade negotiator during his first term as president and has become a “trade adviser” to the current campaign, said in an interview that “tariffs are not inflationary or regressive,” adding that “the extent to which they increase production and create more high-paying manufacturing jobs is ‘probably deflationary.’”
Lighthizer, the former US trade representative, said in particular that “the research that says tariffs are paid by American consumers is fundamentally wrong,” adding that “tariffs are very often paid by foreign producers and importers.”
He continued that “tax cuts can be structured to benefit middle-class Americans more,” adding that “even if we accept the argument that consumers pay for tariffs or that tariffs cause inflation, middle-class tax cuts can be very easily achieved by imposing tariffs, and this can more than offset a very small increase.” He said of the “tariff-and-tax cuts” policy, “The tax system can be progressive,” and “What it will do is change the relationship between importers and American manufacturers, and it will create jobs.” Kimberly Clausing, a former Treasury official in the Biden administration and now an economist at the Peterson Institute for International Economics, told the Times that “combining tax cuts and tariffs would significantly increase income inequality, and it would hurt voters who expect Trump to enter the White House.” “Income taxes work to reduce income inequality in our country by demanding more from the very top, and tariffs never do that,” Clausing said. Anna Kelly, a spokeswoman for the Republican National Committee, said in a statement during the election that “former President Trump put America first by keeping inflation and consumer prices low while imposing tariffs,” adding that “President Trump’s policies have led to a booming economy, and he will once again cut taxes, impose tariffs on foreign producers, bring jobs back to the United States, and put America first from day one.”
Senator J.D. Vance (R-Ohio), who will be vice president-elect, had been a sharp critic of China’s trade practices as a member of Congress before his nomination and had argued that American manufacturers should be protected from “all competition.”
The bipartisan Committee for a Responsible Federal Budget estimated that a 10 percent tariff on most foreign goods under the Trump administration could generate $2.5 trillion in revenue over 10 years.
The Times reported that “this estimate could help plug the fiscal hole created by extending the 2017 tax cuts, and the Congressional Budget Office estimated that it would “It is expected to cost more than $4 trillion,” he said, adding, “On the other hand, a 10% blanket tariff is not enough to replace the approximately $2 trillion in income taxes the government collects each year.”
A report by Clausing and Maurice Obstfeld of the Peterson Institute for International Economics stated that the maximum revenue the United States can gain through tariffs is approximately $780 billion, which is approximately 40% of the amount it currently earns through income taxes.
The biggest issues in tariff policy are condensed into ‘triggering a trade war’ and ‘conflict over compensation for damage to American farmers.’
The Trump administration must now overcome the precedent of ‘political conflict’ over compensation for American farmers and other businesses damaged by tariffs leading to riots in the past.
The first Trump administration has already triggered retaliation from foreign governments by strengthening tariffs, and foreign governments have retaliated by imposing their own taxes on American exports, and American farmers have been hit hard by the retaliation, and the Trump administration has It provided $23 billion to offset the losses of farmers.
The Peters Institute report simulated what would happen if the U.S. imposed a maximum tariff of $780 billion and then cut income taxes by a similar amount across all income groups.
They found that the lowest 20 percent of Americans would see their after-tax incomes fall by 8.5 percent, while the highest 1 percent would see their incomes rise by 11.6 percent.
The U.S. had largely financed its early years with tariffs from Southern importers, which was met with backlash from wealthy Southern farmers, and by the time of the Civil War, the federal government had introduced other taxes to generate more revenue for the states.
The U.S. income tax was introduced in part in response to the rising income inequality that had developed during the Gilded Age in 1913, when gold was the gold standard for individual creation, and it became the subject of the “tax cut” debate between Republicans and Democrats. The Peterson Institute (PIIE) report calculated that President Trump’s current tariff plan would increase the cost of living for the average American household by $2,600 per year.
American manufacturers rely on foreign parts and materials, and tariffs on these products would increase the costs of American factories that use these products, thereby offsetting other benefits in the manufacturing sector, and would structure the structure so that one industry would be supported at the expense of another.
In a report dated March 15 of last year, the U.S. International Trade Commission (USITC) stated that the additional tariffs imposed under Section 232 on imports of steel and aluminum products and Section 301 on certain imports from China would reduce U.S. imports of these products and increase U.S. production and prices of these products, affecting many industries that produce or sell these products or use them as inputs. The Economic Impact Report of Sections 232 and 301 Tariffs on U.S. Industry was prepared under the direction of the Committees on Appropriations of the House of Representatives and the Senate by the Consolidated Appropriations Act, 2022, enacted on March 15, 2022.
The report said, “The import of steel products affected by the tariffs decreased by 24%, the price of steel products in the United States increased by 2.4%, the production of steel products in the United States increased by 1.9%, and the production of steel products in the United States increased by $1.3 billion due to lower tariffs in 2021.” “The import of aluminum products affected by the tariffs decreased by 31%, the price of aluminum products in the United States increased by 1.6%, and the production of aluminum products in the United States increased by 3.6%, and the previous production of aluminum products in the United States increased by $900 million due to lower tariffs in 2021,” the report said.
During the first term of Trump, tariff policies caused several international trade disputes.
Some US exports plummeted as the European Union (EU), China, Canada, and other governments imposed tariffs on US soybeans, whiskey, orange juice, and motorcycles. With Trump's election, this scenario will unfold again on a larger scale, and most foreign governments, except for a few countries such as the pro-Trump 'Korea exception' Yoon Seok-yeol government, appear to be preparing a list of American products that could be targeted in response.