Magical Thinking on Tariffs in OBBB

Scott Lincicome of Cato gives six reasons the Trump tariffs will fall short of the revenue his "One Big Beautiful Bill" tax-and-spend package would require over the decade.

One needn't be an economist to come up with a good guess for some of these, like the third:

Trump himself will likely change the tariffs' scope and application, as he has already done in recent trade deals with the UK and China and other deals during his first term. As long as tariffs are a bargaining chip, they can't be considered reliable government revenue. [bold added]

A three-year-old fascinated by a light switch would be more predictable than Trump has been as he has played around with taxes on international trade.

Lincicome summarizes the others at the above link, but there is more detail both from links in his post at Cato and his guest opinion piece in The Washington Post.

Newest to me is a loophole called the first sale rule, which has been around for a long time:

Within U.S. customs law, the first sale rule allows U.S. importers to use the price of the first sale in a number of transactions to calculate customs duties.

For instance, a Chinese manufacturer sells a T-shirt to a Hong Kong vendor for $5. That Hong Kong vendor then sells the T-shirt to a U.S. retailer for $10. That U.S. retailer then sells the T-shirt to consumers for $40.

Under the first sale rule, the U.S. retailer can pay the import duty on the initial $5 price of the good, rather than the vendor's inflated $10, thus stripping out the cost associated with the middleman's profit.

"What the rules allow you to do is use that initial sales price from the factory to the vendor to determine the final duty price," Brian Gleicher, senior lawyer and member at Miller & Chevalier Chartered, told CNBC over the phone.

It is fortunate that businessmen will jump through these silly hoops for us, blunting the effects of this stupid policy.

But we'll still get ripped off while the federal budget deficit continues to balloon.

-- CAV