What did Donald Trump do today?
He got history wrong as well as economics.Trump has already threatened to impose 25% tariffs on the United States' two biggest trading partners, Mexico and Canada, and an additional 10% on the third largest, China. Today, he made a similar threat against fourth largest trading partner, the European Union.
In explaining the move, Trump insisted that "the European Union was formed to screw the United States—that's the purpose of it and they've done a good job of it."
In reality, the European Union was formed in the late 1940s at the behest of the United States to "screw" the Soviet Union, which was forming its own equivalent economic union in Warsaw Pact countries. Its original organization, the OECC, was stood up with Marshall Plan funds from the United States. One of its primary purposes was to strengthen the coal and steel production of US-allied nations, because those industries were critical for defense purposes.
Unlike every other Democratic and Republican president since Harry Truman, Trump is not particularly interested in defending European allies, and few Americans with any political power have ever been as favorably disposed towards the Putin regime.
This is not the only historical error Trump has made on tariffs recently. Trump has been increasingly insistent that tariffs could fund the government, which would solve the awkward political problem of how much his proposed tax cuts for the wealthiest Americans would cost. He's cited the example of the federal government in the 1890s, when the taxes American consumers paid on imported goods really did account for a substantial fraction of government income. Tariffs are less than 2% of total revenues now.
As economists—and, increasingly, nervous investors—have pointed out, there are just a few problems with assuming that Gilded Age economics will work today. Trump, for his part, appears to genuinely believe that the country was "at its richest" at a time of widespread food insecurity and desperate, grinding poverty for tens of millions of Americans. That may be because tariffs are a consumption tax, meaning that people spending every penny of their income on food and necessities were being taxed on 100% of their income, while those few at the other extreme of wealth paid almost no tax at all—something Trump can deeply relate to.
As economists—and, increasingly, nervous investors—have pointed out, there are just a few problems with assuming that Gilded Age economics will work today. Trump, for his part, appears to genuinely believe that the country was "at its richest" at a time of widespread food insecurity and desperate, grinding poverty for tens of millions of Americans. That may be because tariffs are a consumption tax, meaning that people spending every penny of their income on food and necessities were being taxed on 100% of their income, while those few at the other extreme of wealth paid almost no tax at all—something Trump can deeply relate to.
Why does this matter?
- Presidents who can't tell allies from enemies aren't fit to serve.
- Neither are presidents who can't or won't understand basic economic concepts like "tariffs are taxes paid by American consumers."