Friday, July 26, 2019

What did Donald Trump do today?

He warned France that trade wars are not good and not easy to win.

France has passed a 3% tax on the profits that large tech companies make inside France. While this is a small amount in the grand scheme of things for companies like Google, it's raised objections from the companies that will be subject to it, many of which are based in the United States. 

It's not especially surprising that the Trump administration is opposed to the French tax, but the way Trump announced it makes it obvious that he doesn't know or understand his own tax policy. In a tweet, Trump shouted that

If anybody taxes [US-based tech giants], it should be their home Country, the US. We will announce a substantial reciprocal action on Macron's foolishness shortly. I've always said American wine is better than French wine!

The "reciprocal action" is tariffs, which are taxes paid by American consumers in the form of higher prices. In essence, Trump is proposing to fight a French tax on American profits with an American tax on Americans. This is, more or less, one of the things tariffs are supposed to be used for: retaliating against unfair or unfavorable economic policies by other countries.

The surprising part is that Trump seems momentarily to understand this. He normally doesn't.

Trump's entire years-long trade war, which has cost taxpayers more in bailouts than it has brought in in revenue, and which is devastating American industries subject to reciprocal tariffs, is based on the idea that it is impossible to retaliate in exactly this way. As Trump put it almost a year and a half ago at the outset, "Trade wars are good and easy to win."

Trump's "winning" has cost the average American household about a thousand dollars per year.

Why does this matter?

  • It's really, really important that the President of the United States be able to understand the most basic economic concepts.
  • As a general rule, policies that make average Americans poorer are bad policies.