President-elect Donald Trump’s rhetoric (and understanding) about free markets is just getting more ridiculous. Trump admitted to FOX News Sunday’s Chris Wallace he doesn’t believe in free markets.
Trump then gave the laughable claim he’s still all for free trade, even though he’s not (emphasis mine).
“I’m a big free trader. But it has to be fair. So, what’s happened is we have lost, over a period of years, short years, 70,000 factories in this country. Chris, 70,000.
I always say to people, I think it’s a typo. How could it be so many? Seventy thousand factories. We’re being stripped of our workers. We’re being — I mean, we’re being stripped of our jobs, our good jobs are really good down, and we’ve got to stop it. And the only way you’re going to stop it, the nice way is, we’re reducing taxes very substantially for companies so they’re not going to have to leave because of taxes. We’ll be reducing regulations. Now those are the nice ways of doing it and everyone loves it and everyone’s happy. Businesses, way down. Also middle class, but way down, OK, taxes and regulations.
But when a company wants to move to Mexico or another company — or another country and they want to build a nice, beautiful factory and they want to sell their product through our border, no tax, and the people that all got fired, so we end up with unemployment and debt, and they end up with jobs and factories and all of the other things, not going to happen that way. And the way you stop it is by imposing a tax.”
This is just dumb, and perverts the understanding of “free markets” Trump claims to actually believe in. If you reduce regulations and taxes, then companies will decide to stick around. Tax Foundation published a study in August pointing out America’s corporate income tax rate is one of the highest in the entire world (emphasis mine).
The top marginal corporate tax rate among the 188 countries surveyed was the United Arab Emirates, which has a top rate of 55 percent (Table 1). The United States, with a combined top marginal tax rate of 38.9 percent (consisting of the federal tax rate of 35 percent plus the average tax rate among the states), has the third highest corporate income tax rate in the world, slightly behind Puerto Rico. In contrast, the average across all 188 countries is 22.5 percent, or 29.5 percent weighted by gross domestic product (GDP).
Want to know where Mexico’s (the bane of Trump’s campaign) corporate tax rate exists? It’s at 30%, while Canada’s is 15% (if I understood their tax formula correctly). It’s no wonder companies are leaving the U.S. to go elsewhere. Corporations (large and small) want to save money, and doing tax inversions are a smart way to do that. If Trump really understood how free markets work, he wouldn’t be sitting here saying, “Oh I want fair trade, but I really believe in free trade.”
His complete lack of understanding on trade and taxes gets even worse. From his conversation with Chris Wallace.
Now, I’ve come up with a number of 35 percent. There is no tax if you don’t leave. There is no tax at all. You know, people are saying, they don’t understand, really, what I’m doing. I read The Wall Street Journal the other day. Honestly, their editorial board doesn’t get it. I don’t think they understand business. I don’t think The Wall Street Journal editorial board — and I know some of them. They’re really nice. I don’t think they understand business. They don’t understand what I’m saying.
There’s a 35 percent tax, but there is no tax if you don’t move. But if you move your plant or factory and you want to sell back into our country, you fire all your people, there are going to be consequences for that. There are going to be consequences. You know what’s going to happen?
Nobody’s going to move. They’re not going to move. They’re not going to leave. They’re going to stay here.
But what Trump doesn’t say (whether on purpose or not) is the companies who do decide to not be located in the U.S. will just raise prices to absorb the 35% tax hike. So Playstations will probably cost at least 35% more, shirts made outside of the U.S. will cost more, some alcohol prices will go up, food products, and even some weapons prices because not every gun is made in the U.S. (including the ever popular Glock). There’s also the chance domestic products will go up because parts may have to be imported from foreign countries because they don’t grow here in the U.S.
This is the consequences of Trump’s threat to enact a 35% tax on companies who decide to not be located in the U.S. The most frustrating part is the fact Trump appears to get half the equation (hey, let’s lower taxes and regulations). But then he goes into this protectionist nuttery which is only going to hurt the economy more than help it. It’s possible Trump is just bloviating here and doing the 35% number so he can get something closer to 20 or 15%. This is still bad policy and one he should re-think before trying to get it pushed through Congress.