Tax Reforms and Trade Deficits Absent from Trump’s CPAC Address

In his latest podcast, Peter Schiff looks at Donald Trump’s appearance at the CPAC last week where the new POTUS seemed to hit the campaign trail again, attacking the media, yet saying little about his tax reform or trade deficit policies. President Trump seems to have morphed into Candidate Trump, making promises while avoiding the necessary changes and economic sacrifices Americans will need to make.

Other than his promises to create better “deals” with America’s creditor trading partners like China, Trump’s only specifics have been the possibility of instituting a border-adjusted tax. A BAT isn’t so much a trade tariff as it is a tax structure adjustment. It would allow Trump to keep his campaign promise to lower corporate tax rates in name only. Ultimately, businesses would still pay the 20% because they would no longer be able to “deduct the cost of their imports from their cost of goods sales,” according to Peter. Since businesses can’t deduct the 20% for taxes, that cost would become a “tax” on imported goods and passed along to consumers in the form of higher retail prices.

Ultimately, businesses would still pay the 20% because they would no longer be able to “deduct the cost of their imports from their cost of goods sales,” according to Peter. Since businesses can’t deduct the 20% for taxes, that cost would become a “tax” on imported goods and passed along to consumers in the form of higher retail prices.

The BAT is one way Trump isn’t making moves to prepare Americans for what’s necessary to “Make America Great Again” economically speaking. Trump isn’t saying: “To make America a great manufacturer again, you’re going to have to stop buying cheap goods from China and Mexico.” The political realities of asking voters dependent on cheap products to pay more

The political realities of asking voters dependent on cheap products to pay more is beginning to settle in. Instead of being upfront, Trump is trying to keep US prices competitive through something he’s a self-proclaimed expert in — the tax code.

The real problem with border-adjusted tax is that it’s easy to get around. Consumers are already buying more and more products online, and a border tax wouldn’t catch that purchasing loophole. Peter explains:

“It will result in people buying stuff online from other countries to avoid that 20% tax rather than going to an actual store in the United States. It would really be the death of US retailing were this to come in … what they really need to do is just an across the board 20% tariff on all goods coming into the United States so that you have to pay the tax even if you’re buying it directly through an online vendor.”

Another problem Trump ignored at the CPAC was how inflation is connected to trade deficits, which have helped keep prices low at the expense of good paying jobs. Over the years, Chinese imports have abated the effects of inflation by allowing companies to keep consumer prices low. Inflation is happening, but consumers aren’t feeling is as acutely because of the Fed’s money printing policies. It’s a snow job that’s set the US down the road for a monetary crisis.

Consumers don’t feel the impact of inflation when they go shopping because cheap imports help keep prices low; however, they sure have felt it in their paychecks and job opportunities. Good paying American jobs have been sacrificed for cheap goods and the creation of a consumer culture. Wages have steadily been going down or disappearing while prices have remained relatively cheap. But, again, that’s a similar snow job as the border-adjusted tax. Despite these cheap goods, inflation is still alive; it’s just harder to see because the Fed keeps pumping more money into the system. The reality is Americans have less money to buy the same cheap goods.

Here’s an example: a worker makes $10 an hour and buys a soda that costs $1.75. After a while, the same soda’s price jumps to $2.75, but the consumer is still earning the same $10. They will immediately understand the impact. However, if the soda price stays $1.75 but their wage decreases to $9/hr, the same “inflation” effect occurs, it’s just not as clear.

A similar effect happens when companies downsize products to reduce the quantity of products sold. Something consumers saw along with the increase in raw materials several years ago.  Instead of a 20 oz. soda, consumers now only get 16.9 ozs. for the same price. That’s still inflation in the sense that the purchasing power of their dollars is now lower. The only difference is that Washington and the Fed can claim inflation levels aren’t worrisome by offering up CPI data that skews to nominal price increases rather than real ones.

Get Peter Schiff’s latest gold market analysis – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!