Portside

Donald Trump tries to outdo himself in economic idiocy on a daily basis. While most of us are still contemplating the damage he has done to the United States’ reputation as a country with a stable political environment with his Intel shakedown, his cancellation of a nearly completed windfarm, and firing a Federal Reserve Board governor, we might have missed his latest effort to secure a Nobel in economic stupidity.

Apparently, China is still limiting sales of rare earth minerals and magnets to the United States. I said “apparently” because this is a claim from Trump and, as we know, claims from Donald Trump have only an accidental relationship to the truth.

But the more interesting part of the story is Trump’s threatened retaliation of a 200 percent tax on the goods we import from China. It seems that Trump believes that a huge tax that he would impose on the people importing stuff from China will be even scarier than the 154 percent tax that he was threatening back in the spring.

The point that Trump does not seem to understand, and his advisers are unable to explain to him, is that we pay the tax, not China. There has been much research over the years showing that importers, retailers, or consumers pay the overwhelming majority of the taxes we impose on imported goods, not the other country.

We already have enough data to say that this is very clearly the case with Trump’s most recent tariffs. If other countries were paying Trump’s tariffs, then import prices would be falling. They’re not. They are rising at roughly the same rate they did before Trump imposed his tariffs. Even in the case of China, where Trump has already imposed a 30 percent tax, import prices have only fallen by 2.4 percent over the last year, less than one-tenth the size of Trump’s tax.

Furthermore, it’s not clear Trump’s tariffs are even the reason for the drop in the price of our imports from China. Import prices also fell in 2023. The countryhas been contending with deflation, which means prices for many items there had already been falling even before Trump imposed any tariffs.

But even if China’s exporters might be willing to bear some of the cost of the tariff at current levels, that willingness is likely to go to zero as the size of the tariff gets higher. The reason is that Trump has made the United States a far less important export market for China.

In 2010, China’s exports to the United States were equal to 6.0 percent of its GDP. By 2024 they were just 2.3 percent of its GDP. For the first six months of this year they were just 1.7 percent. Once tariffs start to approach Trump’s triple digit levels, the only items that the United States will still be buying from China are goods that are simply unavailable anywhere else. While these exports are likely to be relatively unimportant to China’s exporters, they are likely extremely important to the businesses that are willing to pay these huge tariffs to buy Chinese goods.

That is why when Trump threatens to impose a 200 percent tariff on goods imported from China, he is threatening businesses here with extremely high taxes. He is not threatening China.

Unfortunately, Donald Trump apparently cannot understand this simply fact about the way that trade and tariffs work. It is even more unfortunate that top advisers, like Treasury Secretary Scott Bessent and National Economic Council Director Kevin Hassett, are too scared of Trump to explain this to him. From China’s standpoint, the higher the better. If Trump wants to kneecap the US economy, why should President Xi stand in the way.

Dean Baker co-founded CEPR in 1999. His areas of research include housing and macroeconomics, intellectual property, Social Security, Medicare, and European labor markets. His blog, Beat the Press, provides commentary on economic reporting. His analyses have appeared in many major publications, including The Atlantic, The Washington Post, the Financial Times (London), and the New York Daily News. Dean received his BA from Swarthmore College and his PhD in economics from the University of Michigan.

Dean previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He has also worked as a consultant for the World Bank, the Joint Economic Committee of the US Congress, and the OECD’s Trade Union Advisory Council. He was the author of the weekly online commentary on economic reporting, the Economic Reporting Review, from 1996 to 2006.

Dean has written several books, including Getting Back to Full Employment: A Better Bargain for Working People (with Jared Bernstein, Center for Economic and Policy Research, 2013); The End of Loser Liberalism: Making Markets Progressive (Center for Economic and Policy Research, 2011); Taking Economics Seriously (MIT Press, 2010), which thinks through what we might gain if we took the ideological blinders off of basic economic principles; and False Profits: Recovering from the Bubble Economy (PoliPoint Press, 2010), about what caused — and how to fix — the 2008–2009 economic crisis. In 2009, he wrote Plunder and Blunder: The Rise and Fall of the Bubble Economy (PoliPoint Press), which chronicled the growth and collapse of the stock and housing bubbles and explained how policy blunders and greed led to catastrophic — but completely predictable — market meltdowns. He also wrote a chapter (“From Financial Crisis to Opportunity”) in Thinking Big: Progressive Ideas for a New Era (Progressive Ideas Network, 2009). His previous books include The United States Since 1980 (Cambridge University Press, 2007), The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (Center for Economic and Policy Research, 2006), and Social Security: The Phony Crisis (with Mark Weisbrot, University of Chicago Press, 1999). His book Getting Prices Right: The Debate Over the Consumer Price Index (editor, M.E. Sharpe, 1997) was a winner of a Choice Book Award as one of the outstanding academic books of the year.

The Center for Economic and Policy Research promotes democratic debate on issues that affect people’s lives, in the US and other parts of the world.

Through rigorous, independent research and analysis we strive to provide the general public and policymakers with the tools to better understand the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among various policy options.

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CEPR was co-founded by economists Dean Baker and Mark Weisbrot. Our Advisory Board includes Nobel Laureate economist Joseph E. Stiglitz; Janet Gornick, Professor at the CUNY Graduate School and Director of the Luxembourg Income Study; and Richard B. Freeman, Professor of Economics at Harvard University.