Taking to social media to express his displeasure with an April 2015 siting decision by a multinational automobile manufacturing company, then-President-elect Donald Trump threatened to make the company “pay [a] big border tax” on products manufactured in other countries and sold to American consumers.
In January 2017, Trump wrote in a social-media post, “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax,” referring to the Toyota Motor Corporation’s plans to build a manufacturing plant in Guanajuato, Mexico in 2019.
In a January interview with German newspaper Bild, Trump directed a similar threat at European automobile manufacturers, saying, “If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay a 35 percent tax. I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA without a 35 percent tax, then you can forget that.”
Some big companies have responded to Trump’s tariff talk by announcing or repeating plans to hire workers or expand capital investments in the country. In December 2016, telecommunications company Sprint announced a plan to relocate 5,000 jobs to the United States as part of a 50,000-job relocation plan already announced by parent company SoftBank.
In January, General Motors, an America-based automobile manufacturing company, announced plans to repatriate 7,000 jobs to the United States, a move the company told reporters had been planned “well in advance.”
Explaining Effects on Consumers
Andy Roth, vice president of government affairs at the Club for Growth, says tariffs and border taxes increase consumers’ costs and reduce the quality of living.
“It would result in higher prices for consumers,” Roth said. “That may not be forefront on their minds, with the economy struggling, but take-home pay will be cut into, if you have to pay more for the stuff you buy.”
Roth says many U.S. manufacturing jobs depend on goods and materials from other countries.
“What people don’t know—and perhaps what Donald Trump doesn’t know—is that over 50 percent of the imports that come from China are raw materials and intermediate goods,” Roth said. “It’s American companies that receive those goods and incorporate them into the final product that they then sell in the U.S. and abroad.”
Myth of Manufacturing’s Decline
Roth says American manufacturing is not a declining industry needing government intervention, such as tariffs, to survive.
“I think there’s a misconception that American manufacturing is on the decline,” Roth said. “That’s not the case. Manufacturing is very much alive and well and growing in the United States. What people are concerned with is manufacturing jobs are declining. Because of a lot of innovations and advances in technology, we’re making more stuff than we ever have before. It’s just not the sexy things like VCRs and iPhones and TVs.”
Gaming the System
Scott Lincicome, an international trade attorney and adjunct scholar with the Cato Institute, says government economic meddling, no matter how well-intended, results in consumers losing and big businesses winning.
“Any set of rules like this will inevitably lead to system-gaming,” Lincicome said. “Large multinational corporations will look at the rules and immediately attempt to exploit the loopholes. The biggest loser in this system is the little guy.”
Lincicome says Trump’s trade proposals will have massive repercussions for consumers and business owners worldwide.
“Not only would this be imposing a massive tax on U.S. consumers, it would inevitably cause a pretty significant market shock,” Lincicome said. “Should Trump start doing stuff like this, I think you would see a rather intense market correction. It would no doubt affect investments. For instance, if you were a multinational corporation deciding where to build a factory, you’re not going to build it in the United States if you think you might have all of your future business and investment decisions scrutinized by some guy in Washington, DC.”
Encouraging Investment in America
Instead of using Twitter to threaten businesses with taxes and tariffs, Lincicome says there’s a more effective way to make America great again.
“The most obvious thing to do is to shift the incentives for multinational corporations,” Lincicome said. “The way you do that is to provide them with a better tax environment, a better regulatory environment, and a better labor environment. You don’t just implement some sort of Rube Goldbergian tariff system threat.”