Peter Schiff: Tariffs Are a Tax on Americans

In Friday’s episode of the Peter Schiff Show, Peter delivers a sobering analysis of “Liberation Day,” exposing the false promises behind Trump’s protectionist measures and their immediate impact on American stocks. He sheds light on the constitutional issues around tariffs, their economic implications, and highlights the urgent need for fiscal responsibility and government spending cuts.

 

 

Peter begins by breaking down the immediate effect Trump’s tariffs have had on American pocketbooks, juxtaposing political rhetoric with the harsh economic realities:

Because really, all he’s going to liberate Americans from is their access to low-cost consumer goods. And in the short run, even before the tariffs have had a chance to work their way through the economy, he’s already liberated Americans from a lot of their unrealized stock market gains. In fact, today, the Dow Jones dropped by over 2200 points, just over 5%. This is the third worst point drop in history. Not percentage, because it’s only about 5%, but it’s the third biggest point drop.

He points out how ill-advised trade retaliation not only amplifies harm but distracts foreign nations from seeing the reality—that tariff imposers hurt themselves the most:

What really hurt today was China’s retaliation. And I’m going to get into all that. But the foreign markets didn’t go down when Trump announced tariffs. They really went down because China retaliated with tariffs of its own, which is a mistake for China to have made. I mean, the best thing that you could do in response to tariffs is nothing because tariffs always do the most harm to the nation that imposes them. But often politicians respond in kind, either because of ego, they want to act tough, or they follow the interests of a special interest.

Peter then tackles the administration’s narrative head-on, dismantling the misguided view that America is victimized by international trade partners. He argues that importing goods is, actually, a free market privilege for American consumers, not exploitation:

Donald Trump claims that the world has been screwing us over. They’ve been taking advantage of us, and that’s why we have these huge trade deficits. And so, what we need to do is level the playing field with tariffs. And that’s going to solve the problem. And now they can’t take advantage anymore because we’re going to make them pay for the privilege of supplying us with goods. But it’s our privilege to be supplied. … The reason that we have trade deficits is not because foreigners have tariffs or because they’re cheating.

Peter warns that to genuinely rectify America’s economic problems, severe and politically uncomfortable decisions must be made. These include dramatic spending cuts to entitlement programs, defense, and potentially defaulting on America’s debt—something that today’s policymakers seem unwilling to even acknowledge:

So the government has to dramatically cut spending, including for Social Security, Medicare, national defense. We probably have to default on the debt because there’s no other way that we could free up the resources to make the investments that we need to make to actually create this industrial revolution that Donald Trump thinks he just unleashed. 

Lastly, Peter challenges the very legality of tariffs by reminding listeners of the clear intentions of the U.S. Constitution. He explains that tariffs are taxes and thus must originate from Congress, specifically the House of Representatives. Handing this power unilaterally to the executive branch undermines constitutional principles:

They’re unconstitutional because tariffs are a tax, right? The taxing authority in the U.S. Constitution rests in Congress and more specifically in the House, because all revenue bills must originate in the House. Now, why is that? … Congress was elected by the people every two years. And so the framers thought if you’re going to raise taxes on the public, then you’re going to have to answer for that every two years when you ask the public for your votes. So by forcing the House to be the body that raises taxes, they thought that it would be much harder for taxes to be raised because you have to go back to the same voters whose taxes you just raised.

Check out last week’s Gold Wrap for Joel’s analysis on the latest tariffs, as well as a summary of how the Fed and other countries are responding.