Trump's Tariff Trick: Stealthy Shift to Consumption Tax?

US President Donald Trump's persistent claim that China is footing the bill for his tariffs is facing significant scrutiny, with economists consistently refuting the assertion. However, some analysts speculate that Trump may be employing a calculated tactic, using the "foreigners are paying" narrative to advance a gradual shift away from income taxes towards a consumption-based system.

As reported by Nikkei Asia, the Trump administration's tariff strategy is being viewed by some as a clever maneuver to increase government revenue and bolster the 2017 tax cuts. "The Trump administration's ultimate goal is 'to generate additional income for Washington, given the deficit that they're facing,'" says Joerg Wuttke, a partner at DGA-Albright Stonebridge Group, in an interview with Nikkei Asia. He suggests that while American consumers ultimately bear the brunt of the tariff burden, the way the policy is presented creates the illusion that foreign entities are paying.

This perspective is further supported by tax attorney Robert Goulder, who wrote on the Tax Notes website that the Trump administration's actions could be laying the groundwork for a cultural shift towards consumption-based taxation. This theory aligns with Trump's own pronouncements, as he recently announced the creation of an "EXTERNAL REVENUE SERVICE" to collect tariffs and revenue from foreign sources, aiming to reduce reliance on the IRS and income-based taxation.

However, experts like Wendy Cutler, a former acting deputy US trade representative, argue that Trump is deliberately misleading the public about who ultimately pays for his tariffs. She contends that if the average American truly understood the cost implications, support for the policy would wane.

Wuttke, however, suggests that Trump's primary objective may not be revenue generation but rather to incentivize companies to shift production to the US. He argues that Trump's policies, coupled with the current favorable economic conditions in the US, are designed to make domestic investment more attractive and discourage imports.

Drawing a parallel between US and Chinese leadership, Wuttke observes that both Trump and Xi Jinping are driven by similar forces: populism, nationalism, and industrialization. He cautions that these very forces are the headwinds for globalization, a system that has historically benefited the elite at the expense of broader public sentiment.