In his push to stop Donald Trump in Indiana, Ted Cruz has finally taken a principled stand against Trump’s economy-crushing proposal to impose a 45% tariff on all imports from China. This comes after months of Cruz equivocating on trade policy and even adopting Trump’s own rhetoric (“we’re getting killed at international trade”) at a debate less than two months ago.
Here’s what Cruz said on last Sunday’s Meet the Press:
Donald’s only economic agenda is imposing massive taxes on the American people with a 40 percent tax hike of a giant tariff. That would send us into a recession. It would drive jobs overseas. It would kill small businesses.
In the past, Cruz has limited his criticism of Trump’s tariff proposal to the fact that it would spark retaliation against U.S exports. He recommended his own proposal for a value-added-tax for having the same effect of stifling imports without incurring such retaliation.
Cruz is, unfortunately, still pushing the idea that bringing manufacturing jobs back to America is a good economic policy. The truth is that American manufacturing is thriving (especially in Indiana) even as manufacturing employment decreases, enabling other sectors of the U.S. economy to grow faster.
Thankfully, Cruz’s plan to “bring back manufacturing jobs” is to reduce the burden of taxes and regulations, which will be good for the economy whether it achieves Cruz’s stated goal or not.
In an interesting twist, Politifact has gauged Cruz’s criticism of Trump’s tariff as only Half True while still recognizing that it would cause prices “to soar” and “cost U.S. jobs.” Here’s what they had to say:
Trump has outlined a few other economic proposals beyond tariffs like declaring China a currency manipulator, upholding intellectual property law, ending China’s export subsidies (more on this later) and lowering the corporate tax rate to incentivize American companies to stay at home. He’s also suggested renegotiating or pulling out the North American Free Trade Agreement (NAFTA) and stopping the Trans-Pacific Partnership.
I think it’s worth recognizing that complaints about what China is doing are not economic proposals. Upholding Chinese intellectual property law and ending China’s export subsidies, for example, are goals that Trump ostensibly hopes to achieve through his tariff proposal. They are not separate policy proposals, since even Trump wouldn’t have the power to change Chinese law.
Tariffs at the level Trump is suggesting would cause prices of cheap products like air conditioners and intermediate goods like auto parts to soar and could cost U.S. jobs. But as some of the costs would be absorbed by Chinese and Mexican exporters, a 40 percent tariff doesn’t translate directly into a 40 percent tax hike.
Most economists agree that American consumers and manufactures would bear some of the cost of these tariffs, though it’s not entirely clear if prices would increase by 40 percent, as Cruz says.
What Politifact has done here is conflate “tax” hikes with “price” hikes. It’s true that a 40% tariff won’t increase prices by 40% and no one, not even Cruz, has said it would. Even a 40% general sales tax wouldn’t increase prices by that amount—some of the added expense would be absorbed in the form of lower wages and lower profits.
A tariff is, by definition, a tax paid by American businesses and consumers when they purchase imports. When only some products are taxed at a higher rate, the result is less competition and less efficiency—leading to higher prices. The fact that foreign producers would also suffer from increased tariffs only goes to show how harmful they can be. It doesn’t mitigate the fact that Trump’s tariff is a tax paid by Americans that would lead to higher prices for American consumers and manufacturers.
Trade is one of a number of areas where Trump’s candidacy is driving the Republican Party away from free market policies. It’s nice to see Cruz, even at his candidacy’s apparent eleventh hour, stick up for free trade by pointing out the costs of protectionism.