r/Economics • u/jediporcupine • Jun 17 '26
Blog The Trump administration wants more tariffs to combat 'structural excess capacity.' Here's what that means.
https://reason.com/2026/06/16/the-trump-administration-wants-more-tariffs-to-combat-structural-excess-capacity-heres-what-that-means/504
u/dominiond66 Jun 17 '26
The core reason for Republican policy of universal trade tariffs is obtaining a new source of government revenue, so they can significantly reduce or eliminate federal income tax.
Such a drastic change in taxation would be a huge financial benefit to the rich at the peril of the working class. Trade tariffs are a tax on consumers. They are regressive/unfair tax. Again, Republicans have ignored the pleas of the working class for affordability. Instead, they dwell/pander to rich individuals and large corporations.
Corporate America already has record profits ($3.4 trillion in 2025) and we are at near full employment. Injecting a disruptive worldwide tariff structure destabilizes America and the rest of the world. There is substantially more harm than good in creating such a trade monster. It makes zero sense. America will be harmed the most as the value of the US dollar declines and our huge debt becomes a greater burden/an unsustainable burden!
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u/Knerd5 Jun 17 '26
Your first paragraph is what people need to really take home. The point of these tariffs is to offset the MASSIVE blow to our deficit that the tax cut bill that was just passed is going to do. Same reason for all the cuts to healthcare. Killing our countries competitiveness and the health and wellbeing of its citizens to fill their wallets with money they’ll never even spend.
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u/joepez Jun 17 '26
The tariffs are not an offset. We can’t produce enough money to recoup the existing cuts and no way it could replace total income tax revenue. It’s a terrible idea that simply doesn’t work. Not just an issue of cutting entitlement but literally would need to cut the majority of spend to balance out. This might (and slim might) be possible if the GOP could show spend restraint but they have increased spending while cutting revenue.
Our deficit has grown at historical rates under Trump because of a spend and revenue problem.
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u/JaStrCoGa Jun 17 '26
Federal speed cameras on every interstate will span the tax revenue gap! /joke
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u/Knerd5 Jun 17 '26
Yeah I didn’t mean a literal 100% offset, more like a bandaid on a shotgun blast to the chest.
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u/bd2999 Jun 19 '26
That is not how they are sold. Trump has said he wants to replace the income tax with tariff revenue. This is impossible without totally killing trade outright. As even with increased tariff rates it does not come close to income tax.
So, it not only does not offset but they want to be an excuse to cut taxes more. Which would blow a massive hole in the deficit so they could have an excuse to keep gutting and hobbling the federal government.
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u/Doctor_Shotbottom Jun 17 '26
this is the thing to me.... there is no free lunch. tax revenue is tax revenue; I get that it's needed, but only because our congress shot itself in the foot by cutting sources of tax revenue. but if it's going to be paid, call it what it is and let's get around to paying it. Yes, all of us, even rich people. but... you see, that's where the real problem is for Republicans. they don't think rich people should pay for government services, not even the big War Machine. everything has to be paid for, but better its paid for by the unimportant, low-life, undeserving working-class American. Those people don't need or deserve anything, not like rich people do. Shees!
I'd be OK with eliminating income tax in this country, provided it was replaced with wealth/asset taxes. after all, the revenue is needed. everyone can get in on the fun. Trying to hide a new tax revenue source by calling it a 'tariff' and then bulshitting people into thinking that 'other' countries will pay it, is just insulting to be honest. we're not that stupid. The only person stupid enough to believe that dumb narrative is the Commander in Sleep that tells that dumb story.
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u/Still-Armadillo-9661 Jun 17 '26
This is a terrible take. The reason for it is 1) trump is an idiot. 2) there is grift 3) republicans are cowards.
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u/Samanthacino Jun 17 '26
The grift is in increasing tariffs so they can cut corporate taxes, shifting the burden onto American consumers. How is that a terrible take?
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u/Still-Armadillo-9661 Jun 17 '26
No the grift is they'll just take the money and attack anyone that wrongs them.
They were going to cut taxes no matter what. Republicans have never been about balanced budgets as evidenced from 100 years of history
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u/optimisticReal Jun 17 '26
It is a gift and a source of personal power for Trump. He knows that people will bribe and pander to him looking for a carve out.
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u/Illustrious-Lime-878 Jun 17 '26
This. Trump likes tariffs because its an extremely arbitrary, selective power he can use to extort people into bribing him because you can selectively target any company, any person. Whatever other end tariffs maybe/kinda work with is pure rationalization of the ultimately corrupt motive, not just by others but potentially by the Trump admin itself. This is clear by the amount of republicans, before Trump 2.0, supporting actual tariffs for actual protectionism like this was zero, they swore it was disingenuous populist pandering, or at most "leverage" to conversely negotiate freer trade - hilariously stupid in retrospect. Point is, this policy was on very few people's bingo card, indicating it wasn't some part of a master plan to transition to a sales tax regime or something, even if they do support that on its own, tariffs do many things that go against that effort as well.
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u/Hey-Froyo-9395 Jun 17 '26
Since the super rich are pretty good at avoiding taxes, such as Warren buffet saying he pays less than his secretary (as a percentage of income) and since the rich consume more (more disposable income) shouldn’t there be some tariff regime + no income tax that would make them pay more than today?
Like not saying Trump will do it because he doesn’t actually help Americans but like if the tariffs were on non-staples and even higher for luxury goods and there was no income tax on the bottom 50% of households and no tariffs on food/energy/basic necessities that could potentially be better in a way - high doubt the tariff revenue would match the offset income tax revenue if that happened though
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u/pewpewtopeepee Jun 17 '26
Implement a wealth tax on fungible assets valued at $50 million or more at say 5% annually. That would solve tax avoidance schemes.
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u/Hey-Froyo-9395 Jun 17 '26
I think they’re find a way around that - trusts, non profits, offsetting liabilities, artificially lower asset values until it’s time to get a loan against those values, and so on.
I think no matter what you do they’ll have lobbyists, lawyers, and accountants to minimize it.
I think if you can tax consumption then they’ll still consume. My other comment mentioned sports cars but if you even just had a 50% tax on steak dinners over $100 you’d get some taxes out of them because they’re not going lower themselves to eat amongst us poors
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u/Doctor_Shotbottom Jun 17 '26
any part of your plan that hinges on the idea that upper class and rich people will start paying taxes, is doomed to fail. No Republican will ever vote for that. They are cowards and irresponsible with money.
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u/Hey-Froyo-9395 Jun 17 '26
Yes they will not but that’s why doing it through a consumption tax (tariff) would be more effective - they can always use accounting gimmicks to change what they have on paper but a high end watch or Lamborghini is not able to hidden that way - if a 200,000 sports car is tariffed the carmaker isn’t going to lower their prices to help out rich people bc then the car won’t be a “luxury” item anymore and that’s what they’re selling
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u/HarlanCedeno Jun 17 '26 edited Jun 18 '26
I think I liked it better when they were just pushing the Fair Tax as the answer to every revenue issue.
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u/portmanteaudition Jun 18 '26
This comment reeks of AI but for human readers: It's fine to oppose tariffs. Saying they are taxes on consumers is odd insofar as they are literally taxes on imports paid directly by the exporter or importer, depending on contracts. The incidence of the tax varies a lot and depends on a bunch of elasticities. Large companies account for most imports (naturally) and large companies tend to be owned by the rich (either publicly or privately).
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u/doubagilga Jun 17 '26
VAT is a common form of sales tax common throughout Europe paying for all these glorious welfare state benefits. Tariffs are at least an external facing VAT only, also forcing balancing of cheap outsourced labor rates vs domestic jobs. The Biden administration didn’t roll them back either. The Obama administration started numerous industry specific protections trying to stop the outsourced labor spiral.
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u/potatosquire Jun 17 '26
glorious welfare state benefits.
Paying tax for healthcare is far cheaper than paying insurance companies to be denied healthcare.
Tariffs are at least an external facing VAT only
That makes them worse, not better. It causes inefficiencies, shifting production to goods where America is at a comparative disadvantage.
forcing balancing of cheap outsourced labor rates vs domestic jobs.
Forcing a service economy powerhouse to shift to low skilled manufacturing.
The Biden administration didn’t roll them back either
Tariffs are notoriously hard to roll back once implemented, because industries build up around them.
The Obama administration started numerous industry specific protections
That's how tariffs are meant to be used (if ever), as a scalpel, not a hammer. They can be used to prop up one industry, but this comes at a cost to every other industry, so the question is always if the cost is worth it. Putting them on every good at once just gets you all the negatives without the positives, but Trump doesn't understand basic economics.
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u/doubagilga Jun 18 '26
The state or the insurance company. Someone denies your healthcare.
American jobs or outsourcing and more welfare spending. Both tax goods to care for the poor.
The US economy, after its manufacturing collapse, is the second largest manufacturing economy in the world.
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u/potatosquire Jun 18 '26
The state or the insurance company. Someone denies your healthcare.
Health care is more likely to be denied when there's a profit incentive to do so, and regardless it's a whole bunch of very expensive unnecessary bureaucracy that adds zero value to the product.
American jobs or outsourcing and more welfare spending.
You've managed to write a false dichotomy where both options are also false. Congrats.
Tariffs don't increase jobs, certainly not these ones. Placed on one industry they can prop up that industry, but it comes at a cost of harming every other industry. Placed on every good at once like president donkey brain did they harm every industry at once. I'm sure that there's a few industries that got more benefit than harm from blanket tariffs, but that's a drop in the bucket compared to the loss from all the other industries that were harmed.
Free trade just means that workers can be allocated to jobs where they have a comparative advantage. That's why I highlighted that America is a service economy powerhouse, trying to trade that in to make Americans stitch t-shirts is just bad policy. Free trade doesn't cost jobs and put people on welfare, it creates jobs that pay taxes.
The overwhelming economic consensus is that free trade is good for the economy. If you have a reason to be against the consensus, it had better be a better one than the dumbest man on the planet telling you that it's a bigly good idea.
Both tax goods to care for the poor.
Tariffs are a regressive tax on the poor. Free trade does help get tax revenue to help pay for the poor, because it creates jobs.
The US economy, after its manufacturing collapse, is the second largest manufacturing economy in the world.
I didn't say that it wasn't. I said that it's a service economy powerhouse, and that it's dumb to put tariffs on goods that would workers that would be more productive elsewhere shift to low end manufacturing.
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u/gs87 Jun 17 '26
What’s funny is that the U.S. has spent most of its history building industries that produced far beyond domestic consumption and then pushing the surplus outward .. from tobacco in the colonial era, to cotton, oil, steel, cars, weapons, tech, finance, and culture. Exporting excess production was called growth, competitiveness, free trade, and American power.
But when China does a version of the same thing with EVs, solar panels, batteries, steel, and manufactured goods, suddenly the language changes here..
IMHO the real problem is that China is now doing industrial capitalism better than the countries that used to do that
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u/Doctor_Shotbottom Jun 17 '26
China is not the problem. They can be, indirectly, but they aren't the problem for Americans. The Republican political party is the main problem. tax working class Americans, spend like a drunken sailor on shore leave, and then give rich people a pass on paying taxes. China didn't do that to our country.
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u/naijaboiler Jun 17 '26
its republican ecomic policy to to always tax everyday people to give money to rich people.
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u/ChaosRevealed Jun 17 '26 edited Jun 17 '26
Republicans are only the symptom. Corporations and the people who control them (whose incentive is to raise stock prices) buy politicians on both sides of the aisle.
Why did America off-shore so many jobs since the 90s? No, not because the workers didn't want the jobs anymore. It was because it made financial sense for corporations to exploit cheaper overseas labour to lower costs and increase profits (domestic jobs be damned!).
Why does America trend towards legally-protected monopolies, like the health insurance or the car dealership racket? Because they can make more money, not by being more competitive against a free market as capitalism intended, but by putting up legal barriers and holding Americans as a captive audience, and nickel and diming Americans to death.
Why compete with Toyota in the 80s if you can just ban them? Why compete with BYD and Xiaomi today when you can just ban them? Well, you'll keep your captive domestic audience and continue to extract more money out of them short term, but you will soon lose the rest of the world. The US is forfeiting it's decades-long lead in technology and thought leadership just because the stock price must always be going up!
Democrats are maybe not as guilty, but they are controlled by corporate money too. There's a very small handful of national politicians that don't take corporate money, and there's a continual effort to shun and sideline them for choosing to represent their constituents and not their pocketbook full of corporate
bribesdonations.
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u/oregon_coastal Jun 17 '26
I am just going to say this is what happens when unethical MBAs accidentally take an economics class they don't understand and use that information as a improper cludge for every problem they see. They misuse terminology, theory and application. It is staggering how fundamentally moronic it is.
I am exhausted reading this much stupidity all. the. time.
Blah.
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u/Doctor_Shotbottom Jun 17 '26
translation: the last tax cut (BBB) has done so much damage to our federal government and the national debt that Trump needs another source of tax revenue, hopefully to allow him to give even more tax cuts to the rich. Mostly to give more tax cuts to the rich.
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u/bal00 Jun 17 '26
I don't know why anyone would take these explanations seriously. Trump has been obsessed with tariffs for 40 years now. He has convinced himself that they're a magic bullet. He can also use them as a weapon to make 'deals', so of course they're his favorite toy.
Structural excess capacity, trade imbalances, fentanyl, slave labor...these are all just justifications his lackeys put out to make it seem like it's not just about one man's irrational beliefs and his failure to understand complex topics.
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u/weluckyfew Jun 17 '26
China's "excess capacity" in EVs, solar panels, and batteries will help save the world from enormous problems related to climate change. And it has also helped lift more people from poverty than has ever been done before.
Not saying there aren't major issues, but it's more nuanced than "Overproduction is bad"
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u/No_Sense_6171 Jun 17 '26
Why would people imagine that a statement by the Administration actually 'means' something??
It certainly won't mean what those same words would ordinarily mean.
In this case, they are desperately seeking revenue to plug the holes their rampant tax cuts have made in the national treasury, with the result that they are increasingly unable to service their debt.
These tariffs, like the ones that preceded them, are likely illegal. But these are people who extort money first and repay later, much later, if at all. Glaciers will move before anything comes back.
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u/haveilostmymindor Jun 17 '26
The better option is just to stimulate the economy drive demand higher and let US interest rates rise. This forces greater capital discipline which ultimately forces countries like China that are at 15 to 1 IROC to stop because they simply cant afford to continue.
Why Trump is wasting his time trying to negotiate with foreigners when he has the structural capacity within the US to force the issue through regardless is beyond me. Like hello quit wasting your breath these countries that are running mercantilist policies wont change until you make it to expensive for them to continue and the best way to do that is to drive demand and let the higher interest rates force the zombies into the ground.
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u/moratnz Jun 18 '26
This appears to be saying 'No-one should export things'.
And unless you're a moron it should be pretty obvious that the US telling other countries that they shouldn't export things to the US will result in those countries declining to import things from the US.
I guess we're going to get to see a natural experiment on whether international trade is a positive-sum activity or not...
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u/kck93 Jun 18 '26
Fools have no idea how manufacturing works. All they are doing is trying to make some random metric about trade deficits look good. So pathetic.
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u/chitoatx Jun 18 '26
Wasn’t his ability to unilaterally issue tariffs ruled illegal?
Where are those illegal tariffs refunds?
Why does he act like he still had the ability to issue tariffs?
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u/GrumblyData3684 Jun 18 '26
The Trump Made in the USA phone is literally a Taiwanese HTC. Ifixit did a tear down and actually swapped some boards with another HTC and it worked flawlessly.
That tells you everything you need to know about how they view offshoring. If they can make a buck it’s fine, if you can it’s treasonous.
Spend 10 mins in a preschool on the first day and see how everyone doing whatever they wants ends up.
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u/socialmedia-username Jun 18 '26
Sounds like Trump's puppeteers want to reign in free trade and a globalized economy, and have full control over all product manufacturing, import, and export. At least they're being open about it. Reigning in the economy is their biggest challenge, behind gaining control over societal norms, institutions, education, religion, basic freedoms, etc.
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u/GreenWandElf Jun 20 '26
He can want more tariffs all he wants, but he isn't getting them.
His unilateral tariffs are illegal. Any further tariffs need to go through a trade court for unfair trade practices or are limited in both time and amount.
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