by Dr. Roy Cordato
Senior Economist, Emeritas
President Trump announced this week that he intends to place heavy tariffs on two brands of imported washing machines, LG and Samsung, and on imported solar panels and other solar power related hardware.
But in fact, like all taxes, these tariffs are not being placed on products, which of course can’t pay taxes, but on people. And the people that will pay these tariffs are the American consumers of these and related products and services. On the heels of the massive income tax cut passed at the end of last year, the president, with these tariffs, is choosing to impose a consumption tax increase.
There are several ways, direct and indirect, that American consumers will pay this tax. The first is the most obvious and direct. Like any excise tax, regardless of who legally is responsible for paying it, the result will be higher prices for consumers. In this case, families and commercial businesses buying LG and Samsung washing machines and companies installing solar panels will be affected.
But that’s just the beginning. More indirectly, not just the price of LG and Samsung machines can be expected to increase but, because the tariffs will reduce competition for washing machines generally, prices will rise throughout the industry and consumers of all brands of washing machines will take a hit to their wallet. As a result of the tariffs on solar panels, we can also expect to see an increase in the cost of electricity generated by the solar power and an increase in electric bills. This would be particularly true in a state like North Carolina where utilities are required to generate a minimum amount of electricity from solar power. So, not only will the cost of washing machines go up but so will the cost of running those machines.
It’s not particularly controversial to argue that American consumers will be getting the shaft from Trump’s “America first” tariffs, but why are foreign consumers likely to be beneficiaries?
The fact is that Trump’s protectionism, by reducing the demand for the newly taxed products in the United States, will likely increase the supply of these products in the rest of the world. Samsung, LG, and the various solar panel companies that will be affected directly by the tariffs will likely attempt to sell those products that they otherwise would sell in the U.S. in other markets. This will drive down prices for non-American consumers of these products. Trump’s tariffs will be facilitating a wealth transfer from American consumers of washing machines and solar panels to foreign consumers.
If President Trump is truly concerned about putting “America first,” he should avoid all forms of protectionism. On the other hand, if his goal is to use American consumers to subsidize consumers in other parts of the world, then he may be on the right track.