Artis Real Estate Investment Pref Shs Series E T.AX.PR.E

Trump

[Torontojay]

Is planning on putting a 60% + tariff on China and about a 20% tariff on everyone else. This is effectively a tax that foreign entities  have to pay to do business with the United States. If we hold everything else constant, then this is estimated to reduce the deficit by almost $ 1 trillion which effectively negates the interest payments on the national debt. The current $ 2 trillion deficit would shrink to $ 1 trillion ceterus paribus. On the flip side, the American people will pay the price with higher priced items for things that they usually buy. Think Wal-mart or Home Depot. Almost everything comes from China. This will push inflation higher at the consumer level and lower at the government level. Ok so what comes next? Let’s talk about this in terms of the money supply. If you shrink the government deficit then this has the same effect of lowering the money supply. This is disinflationary if and only if the government pays down its debt. How do we solve the inflation at Home Depot or Wal-mart? One explanation is corporate tax cuts. If tax decreases, then the money supply will grow by the net amount of taxes not owed to the government. The idea behind corporate tax cuts is that they could pass these savings to individuals which can now afford higher priced items at the store. It’s all about controlling the money supply. If tariffs offset corporate tax savings, then the money supply would remain the same if we hold everything else constant. 

 

One thing is clear, the US is on an unsustainable path that can only be solved through higher taxes or lower government spending.