The Myths and Misinformation About Tariffs

The latest four-letter word has not one but two "f's."  Although it has six letters, "tariff" rouses the same nastiness as the other "f" word.  The ongoing tariff war between President Trump and U.S. trading partners stirs passionate supporters and detractors at home and abroad.  

Democrats, the media and many on Wall Street land solidly in the camp of critics. The cabal has carried out an assault on Trump's plan to implement reciprocal tariffs.  The detractors have been guilty of deceptive partisanship rhetoric and a torrent of disinformation. 

Perspective has been universally ignored or deliberately obfuscated. Listening and reading the commentaries the average American might legitimately assume levying tariffs is a new phenomena instituted by Trump.  Or that tariffs are somehow unAmerican. Both assumptions are wrong.

For perspective, the U.S. trade deficit surged to an eye-watering $1.1 trillion in 2024 as Americans bought more imported products than our producers exported. The U.S. ran a $226 billion deficit with its top trading partners: Mexico and Canada. The largest deficit was with China: $270 billion.  

Trade deficits lead to job losses in domestic industries, particularly the manufacturing sector. Reduced production in key technology, military and mineral sectors increases dependence on foreign suppliers.  Deficits can also contribute to the nation's debt, as the U.S. relies on foreign borrowing to finance imports. 

Tariffs were first levied by the nascent United States in 1789.  The architect was Alexander Hamilton who shepherded a law passed by the new government authorizing tariffs.  Duties were slapped on a range of imported goods to help pay down Revolutionary War debts and protect American markets.

Trump's goals for reordering tariffs are similar to Hamilton's motives. The president favors reciprocal tariffs, mirroring each country's tariffs on American goods.  Some tariffs, like those on steel, are designed to protect our manufacturing base. Tariff income will go toward paying down national debt. 

U.S. tariff revenues for June eclipsed the $100 billion mark for the fiscal year after the country received $27 billion in custom duties for June. Compared to last June, the figures have skyrocketed 301%, according to the Treasury Department's Customers and Certain Excise Taxes data.

Treasury Secretary Scott Bessent estimated that the heightened tariffs may generate as much as $300 billion for the federal government by the end of the fiscal year.  For clarification's sake, businesses pay the duties on imported goods directly to the U.S. government. 

Another perception created by the detractors revolves around changing tariffs. Many argue that the tariffs do not need to be  altered. Tinkering with tariffs creates turbulence and uncertainty, miffs allies and drives up the prices Americans pay for goods and services.  

Firstly, tariffs seldom have remained static.  Countries around the world are constantly tweaking tariffs, primarily to protect home markets.  For its part, since 1789 this country's tariffs have swung back and forth. Tariffs were changed in 1890, 1913, 1920 and 1921, just to name a few examples.

The Tariff Act of 1930, designed to protect American agriculture, raised duties on 20,000 imported products.  Canada, Britain and France among others retaliated with their own tariff increases.  Sound familiar?  In the late 20th and early 21st centuries, there was a concerted effort to reduce tariffs.

During the back-and-forth over the years, tariffs have been as low as zero and as high as 49%.  

Critics have cried foul, fearing that Trump's tariff threats will disrupt the free flow of goods.  However, a trade war has raged under the radar against the U.S. for decades.  Tariffs and non-tariff barriers have been levied against America's producers by foreign countries, including traditional allies.

At the end of 2024, the average U.S. rate on all imports was 2.5% with no restrictions.  Canada had a duty free import tax, but it has many restrictions.  For example there are restrictions on dairy, chicken and eggs, putting a quota on imports. There are additional restrictions on fruits, beer and alcohol. 

Mexico also had a duty free levy on imports, but bans the importation of U.S. medical devices, pharmaceuticals, steel products, agricultural chemicals, cheese, milk, yogurt, mobile devices and genetically engineered corn and dough.  

Other countries have higher duties, for example: Japan; 3.9%; India 18.1%; European Union, 5.1%; China, 7.5%; Brazil, 11.1%; Argentina; 13.3%; Malaysia, 5.6%; Norway, 5.2%; Pakistan, 10.3%; Switzerland, 5.6%; Taiwan, 6.5%; Thailand, 9.7%; Turkey 16.8%; and Vietnam, 9.6%. 

The European Union has particularly onerous restrictions on U.S. imports. The confederation imposes a 26% tariff on fish and seafood; 10% on passenger vehicles; and, a 22% tariff on trucks. Additionally, the EU restricts or prohibits U.S. imports of beef, wine, pork and beef to name just a few products. 

The data is unambiguous. It's inaccurate to claim there is free and unrestricted trade among U.S. trading partners. 

The tariff pundits, particularly those on Wall Street, postulate that a tariff is a tax on goods and services.  That is a misleading characterization.  The EU places an average value added tax (VAT) of 21.8% on U.S. imports in addition to the tariffs.  The U.S. has no equivalent tax on imports. 

By using the misnomer "tax," critics want consumers to believe import duties automatically boost retail prices. The truth is companies that import goods decide how much, if any amount, to pass along to the consumer.  Often, foreign exporters lower their costs of goods to offset the tariffs.

Companies in competitive markets are more likely to find ways to mitigate the impact on consumer prices.  But firms with market power can pass the full cost of the tariff to the consumer.  For the sake of fairness, the factual answer on consumer prices is: "it depends" on market competition and the business.

The anti-Trump brigade on Wall Street point to the recent Consumer Price Index (CPI) of 2.7% as proof tariffs are increasing consumer prices. However, the Producer Price Index, which measures wholesale costs, showed no change in June.  In fact, the June number was the lowest since September 2024.

Unlike the CPI which measures prices from a consumer perspective, the PPI focuses on the producers costs. The latter provides insight into inflationary pressures in the economy and is closely followed by the Federal Reserve.  Rising wholesale prices often signal higher consumer prices.   

This helps validate the administration's view that tariffs are not solely responsible for increases in  consumer prices. The prices reflect retailers of goods and services choosing to increase costs for other reasons, such as wage hikes, transportation costs and supplier increases.

The biggest losers in any trade war will be the countries that export to the U.S., which has advantages of size, economic resilience and consumers with money to spend. Despite what you may hear, there is no other country's economy that could absorb the lion's share of  the imports transported to the U.S. 

In spite of complaints by free-trade hawks and naysayers, President Trump's tariffs are aimed at leveling the playing field for U.S. exports to foreign countries and reviving U.S. manufacturing.  No question it's a high risk strategy.  But fair treatment for American workers and companies is worth pursuing.  

It's Big, But Is It Beautiful or Ugly?

Dueling political narratives have flared up with the passage of President Trump's so-called Big Beautiful Bill.  Democrats argue it doles out tax breaks for billionaires and penalizes the poor.  Republicans retort it boosts paychecks for working families and cuts waste and fraud.   

The 887-page bill hashed out between the Republican controlled House and Senate was signed into law on July 4 after days of intrigue, party in-fighting, partisan rancor, arm-twisting and all-night voting sessions. The political war of words is becoming a flashpoint for next year's mid-term elections.

Democrats have lifted the curtain on their tactic for next year's attack ads aimed at building a majority in both houses of Congress.  Here's an early preview of criticisms of the bill along with the specific provisions in the mega package: 

• The bill is just a tax break for billionaires.    Tax rates on every person--from the poorest to the richest--will remain where they are. The legislation makes the tax cuts permanent, with annual inflation adjustments for those in the 10, 12 and 22 percent tax brackets.  It also increases standard deductions from $15,000 to $15,750 for individual taxpayers and from $30,000 to $31,500 for married couples filing jointly, subject to income limits. Taxes on businesses remain at 21%.  Prior to the 2017 law businesses were taxed at 35%. There are also reduced limits on business expensing and deductions. 

• But billionaires are getting the biggest tax break.  Households making under $50,000 receive a 14.9% tax cut in the legislation.  Households earning under $100,000 got a 12% tax break.  The top 1%--the billionaires and millionaires--received a 2.4% tax cut from the rates they paid prior to 2017.  

• The bill does nothing for the middle class and poor. New deductions for tips, overtime and car loan interest support hourly workers. The new law increases the child tax credit to $2,200 from $2,000 starting in 2026. The credits are adjusted annually for inflation.  The bill will allow individuals to deduct tips on wages and overtime pay for tax years 2025 through 2028. The bill caps the deductions on tips at $25,000 per year.  Under the legislation, no taxes apply to overtime up to $12,500 per individual. The tax benefits phase out for individuals making $150,000 or more. It also allows borrowers to deduct up to $10,000 in car loan interest payments for the next four tax years, if final assembly for the car was in the U.S. Eligibility is tied to income: Those earning $100,000 or less ($200,000 for joint filers) qualify. The mortgage interest deduction remains capped at $750,000 for joint filers.   

• The law does not eliminate taxes on Social Security as promised.  Indeed, taxes on Social Security remain the same, despite the President Trump's campaign pledge.  However, the bill allows individuals 65+ with up to $150,000 in household income (joint filers) to subtract $6,000 from their income. Taxpayers earning more than $250,000 jointly or $175,000 individually are not eligible to receive the benefit. The standard deduction for Americans 65+ has been raised by $2,000 for individuals and $1,600 for households. An estimated 64% of seniors receiving Social Security will benefit from the changes.These deductions will expire at the end of 2028.The bottom 20% of taxpayers remain exempt from taxation on SS benefits. They pay no tax today.  Eliminating taxes on Social Security would have lowered federal revenues by $1.5 trillion over ten years, raising the federal debt.

• People will die because of Medicaid cuts. There are no cuts in Medicaid payments to eligible recipients. The law stipulates new requirements in 2027 for those who enroll in Medicaid.  Abled-bodied recipients will no longer be eligible unless they meet certain requirements, primarily working 20 hours a week.  The legislation exempts the disabled, pregnant women, those enrolled in school, anyone caring for a child younger than 14 or persons who volunteers at least 20 hours a week.  The Congressional Budget Office estimates there are 4.8 million of the 84.6 million people on Medicaid who will no longer qualify. Medicaid costs have spiraled out of control since 2019, rising 60%.  

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• People will go hungry without food stamps. There are 42.6 million people receiving benefits under Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps.  Despite fewer unemployed persons today, those receiving benefits remain the same as 2012. Under the Clinton Administration, there was a work requirement for food stamps.  The Biden Administration waived work requirements for able bodied people.  The new legislation adopts work requirements and requires states to contribute to SNAP benefits, which are now 100% funded by federal government. The bill specifies able-bodied adults without dependents must work 80 hours per month (or 20 hours per week) to qualify for food stamps. Exemptions are made for physically or mentally handcapped, pregnant women, those caring for young children and individuals enrolled in certain educational and training programs.  Additionally, veterans, the homeless and foster care youth under the age of 24 are exempted from work requirements. SNAP payments will continue at current levels.  It is unclear when the new work requirements will take effect.  The Agriculture Department is charged with issuing the final guidelines.                                         

• People will lose their healthcare coverage. The legislation imposes stricter income verification requirements while enhancing premium tax credits for purchasing Obamacare (Affordable Care Act).  The credits will lower out-of-pocket costs for Americans who enroll in ACA plans, which may lead to increased enrollment, particularly among low-to-middle-income facilities. Critics claim the eligibility verification will add more red tape for enrollees, causing some to drop out of the program. A total of 6.4 million individuals were fraudulently enrolled in ACA plans in 2025 alone, costing taxpayers an estimated $27 billion. In addition, the legislation excludes illegal immigrants from enrollment.   

• Medicare benefits are at risk.  Medicare benefits and spending are not changed under the legislation. However, about 1.3 million people who qualify for both Medicare and Medicaid may have an increase in out-of-pocket costs. Some illegal immigrants may potentially lose their coverage, depending on the final rules adopted by Medicare.   

• The BBB will increase the national debt and produce budget deficits.  The Congressional Budget Office estimates the legislation will reduce tax revenues by $3.7 trillion over the 2025-2034 period, hiking the deficit by $2.4 trillion.  The estimate does not account for how the tax reduction will impact economic growth. The Tax Foundation puts the estimated federal budget deficits at $2.9 trillion covering the years 2025 through 2034.

• The bill negatively impacts the environment and eduction.  The bill ends the $7,500 tax credit for electric vehicles on September 30.  It maintains tax credits for hydrogen, carbon capture, nuclear energy, geothermal energy and boosts oil drilling. Individual tax credits for residential energy projects, such as solar panels, expire after 2025. Tax credits for commercial wind and solar projects will continue as long as construction begins by June 2025 and facilities are placed in service by 2027. College endowments with more than $2 million in assets per student will pay an 8% tax on investment income. Institutions with fewer than 3,000 tuition paying students are exempt.  Under the legislation, student loan interest payments will resume this year after being suspended by the Biden Administration under a loan forgiveness program that was blocked by a federal appeals court.