Many conservatives may be cheering at the prospect of President Trump’s imminent “border tax” on companies wanting to import manufactured products from outside the United States; this step will surely spur companies to keep their production lines in the U.S. and stop job losses caused by firms moving assembly lines overseas, right?
Well, yes, that may be true. But another scenario is equally possible, and it is this: many U.S.-based companies’ sales operations are based on importing goods and selling them to American customers. Losses in profits from Trump’s border tax could translate to significant job losses that might more than offset the gains experienced by companies finding American manufacturing more competitive in years to come.
As it stands, Trump had projected his border tax to be around 35 percent for concerns looking to locate their production offshore or buy goods wholesale from other companies already making them in places such as China or Mexico. Congress thought Trump’s number was too high, and it now looks as if a compromise figure of something like 20 percent may ultimately be agreed to.
But these same Congresspeople may not be taking into account the 16 million Americans who work at phone stores, car dealerships, shoe stores, clothing stores, dollar stores and other outlets where the majority of goods being sold are cheap imports.
If the American economy was humming and people had plenty of money to spend, these stores could simply raise prices to offset the tax payments that will be expected, and not much fuss would be made of it. The problem is that Americans are still smarting economically from the past eight years of Obama administration fiscal tomfoolery, and indeed, from the last 40 years of downward trends in wages, income and jobs.
For the retail sector, the consequences have been severe; after Christmas, Macy’s announced it would be closing at least 100 stores; Sears will be closing 150. Many malls around the country are hurting not just because of the rise of cheaper online alternatives such as Amazon, but because a vast number of Americans simply can’t afford to shop at big department stores anymore.
As many as 25 percent of Americans have no savings, and 40 percent have no retirement savings. These people primarily shop only at major discount or dollar stores, and in these outlets, up to 99 percent of everything that’s sold is imported. In this difficult economic situation, even a five percent increase in prices across the board would make significant differences in sales. Already, in anticipation of Trump’s border tax, Walmart is cutting 1,000 jobs at its headquarters in Arkansas.
But proponents of the border tax ask “couldn’t the job losses in retail be made up by the gains in manufacturing jobs under Trump’s plan?” Not really. The problem is that manufacturing jobs are more efficient productivity-wise than retail jobs; that’s why they pay more.
But it also means there aren’t as many of those jobs that get created when manufacturing industries expand. Ford, Fiat and General Motors have said that collectively they’ll be adding 4,000 jobs to the U.S. marketplace in the next several years. But Macy’s alone is eliminating more than 10,000 jobs, including numerous management positions.
Amazon has said it expects it will be adding 100,000 jobs, but those will almost certainly be offset by job cut at less-efficient retailers the online giant will displace. Just one brick-and-mortar department store can employ as many as 1,000 people.
It’s true that instead of creating a border tax that would add costs for importers of goods, Trump could cut taxes for companies that export their products. The problem there is that this would add to the national debt, which is already increasing by leaps and bounds. Of course, it still could mean a net job gain, whereas under Trump’s current plan, jobs may not effectively be added to the economy due to the above-mentioned issues.
Another option to solve the problem might be to phase in the border tax gradually, so that as the economy improves, incremental increases in the prices of consumer goods could be absorbed more realistically; forcing consumers, retailers and importers to feel so much economic pain at once may be counterproductive and psychologically too jarring.
Here’s hoping that Trump’s economists such as Treasury Secretary Steve Mnuchin and Commerce Secretary Wilbur Ross can bring some common sense to the table regarding this issue.
Regards,
Ethan Warrick
Editor
Wealth Authority
