It's Even Worse Than You Think

by David Cay Johnston

The tariff might also cause some tomato growing to move back to the United States, but that, too, would come at a cost. Because of the tariff, the costs would still be paid by American consumers because the tariff would put upward pressure on the prices of all tomatoes.

  In the early days of the American Republic, as the country transformed from an eighteenth-century agricultural nation into the world’s leading manufacturer in the late 1800s, tariffs on imported goods financed the government. Those tariffs also helped domestic manufacturers grow by enabling them to charge higher prices than in a theoretically free market. But those higher prices came at a cost: they generated extra-large profits, but the higher prices paid by consumers left them worse off because they could buy fewer goods.

  No matter how the cost of the wall was paid, Americans would pay the price in dollars. Clearly, a tariff would not be the America First policy that Trump promised workers and businesses.

  The tariff trial balloon was informative for another reason. Trump said he knew more about taxes than anyone else in the world, yet his plan showed no awareness whatsoever of the history of American tariffs. Popular dislike for tariffs was a major reason the individual income tax was adopted a century ago. The burden of tariffs fell heavily on the poor and emerging middle class at the start of the twentieth century century, while the super-rich enjoyed their profits and salaries free of a levy on their enormous—for the time—incomes.

  The Smoot-Hawley Tariff Act enacted in 1930 at the start of the Great Depression made that economic downturn worse. The act provoked retaliatory protectionist measures by other countries. American exports and imports fell by about half during the Depression, much of which mainstream economists blame on the trade conflict the Smoot-Hawley Tariff initiated.

  The vulnerability of American exporters to a protective tariff like Smoot-Hawley also escaped Trump and his staff. After years of importing oil from Mexico, in late 2015 the U.S. became a net exporter of petroleum to Mexico, selling that country about 211,000 barrels of oil per day, worth about $4 billion per year. The Trump tariff plan might, however, prompt Mexico to rely on its own oil or perhaps buy from Venezuela or some other country hostile to the United States. That would cost America in lost export revenue and run counter to Trump’s plan for America to acquire global “energy dominance.”

  That Trump obviously did not know that with a tariff Americans, not Mexicans, would pay for the wall tells us two things. One is that Trump is no expert on taxes.

  The other goes to his frequent statements that “I’m really, really smart” and “I’m like a smart person.” However smart he is or is not, the tariff plan and many other actions show that he did not pay attention when he was a student or forgot what he was taught at Penn, an Ivy League school, about economics.

  That Trump doesn’t know the economics of finance became clear in lawsuit testimony from a decade earlier. He said he did not understand accounting. That Trump doesn’t know the economics of finance became clear in lawsuit testimony from a decade earlier. He said he did not understand accounting:

  The concept of net present value to me would be the value of the land currently after debt. Well, to me, the word “net” is an interesting word. It’s really—the word “value” is the important word. If you have an asset that you can do other things with but you don’t choose to do them—I haven’t chosen to do that.

  Like his plan to make Mexico pay for his wall, that’s gibberish. Net present value is simply the cost of acquiring and supporting an investment over the years measured against the expected money it will bring in and then reduced to the equivalent of a financial exchange made today.

  The tariff balloon popped quickly, but Trump continued with his fantastical comments about the wall. At a February 17 press conference the president said,

  We’ve undertaken the most substantial border security measures in a generation to keep our nation and our tax dollars safe. And are now in the process of beginning to build a promised wall on the southern border, met with general—now Secretary—Kelly yesterday and we’re starting that process. And the wall is going to be a great wall and it’s going to be a wall negotiated by me. The price is going to come down just like it has on everything else I’ve negotiated for the government. And we are going to have a wall that works, not gonna have a wall like they have now which is either non-existent or a joke.

  He threw in a gratuitous slap at Mexico and other countries south of the border, too, saying a new office would deal with “the many forgotten victims of illegal immigrant violence.”

  Trump called the Mexican president on his eighth day in office to talk about his wall. Again, he was told Mexico had no interest in any wall.

  “Mr. President, this is not a personal difference. It has nothing to do with you personally, Mr. President,” Peña Nieto said, his tone cordial throughout. However, he added, “I cannot ignore this because we find this completely unacceptable for Mexicans to pay for the wall that you are thinking of building.”

  He expressed sympathy for Trump, too. “I understand, Mr. President, the small political margin that you have now in terms of everything you said that you established throughout your campaign. But I would also like to make you understand, President Trump, the lack of margin I have as President of Mexico to accept this situation.”

  Trying to find a mutual way out of the issue, Peña Nieto said the wall was “the critical point that has not allowed us to move forward in the building of the relationship between our two countries. I propose, Mr. President, for you to allow us to look for ways” to resolve the differences because “for both our governments, this could constitute a win-win situation.”

  Trump’s responses were all about his situation. “I was voted on the basis that we are losing so much money to Mexico in terms of jobs, factories, and plants moving to Mexico. We cannot do this anymore and I have to tell you it is not sustainable,” he said, adding, “I won with a large percentage of Hispanic voters.” (Trump got a third of those voters.)

  Again, Peña Nieto sought a different approach, suggesting they “find a route towards the dialogue to find a balance in our trade . . . the best virtual wall that I think we can build between our two countries is to make sure that both countries have economic development. And it is exactly on this issue that we have been talking about a more fair trade relationship between our two countries, so we can build this type of framework for that relationship. I leave this for your consideration, Mr. President. The will of my government is not to have points of difference with you, but rather points of agreement.”

  Trump then turned to pleading. “We are both in a little bit of a political bind because I have to have Mexico pay for the wall—I have to. I have been talking about it for a two-year period, and the reason I say they are going to pay for the wall is because Mexico has made a fortune out of the stupidity of U.S. trade representatives.”

  Trump’s mind may have drifted as he spoke his next words, because in addressing his counterpart, he used the third person. “They are beating us at trade and they are beating us at the border, and they are killing us with drugs.”

  Peña Nieto then suggested, “Let us stop talking about the wall.” He said all governments have a right to protect their borders, adding, “My position has been and will continue to be very firm saying that Mexico cannot pay for that wall.”

  Trump’s tone shifted. Instead of talking trade deficits, he spoke of himself. Addressing Peña Nieto as if he were a subordinate, or even a servant, Trump issued an order: “You cannot say that to the press. The press is going to go with that, and I cannot live with that.”

  Later in the call Trump said, “If you’re not going to say that Mexico is going to pay for the wall, then I do not want to meet with you guys anymore because I cannot live with that.”

  Trump’s final negotiating position was exactly what I warned voters about during the campaign. Trump had spent his whole life in business deals that often benefited him and hurt others, ending their relationship on
an acrimonious note. But as president, Trump would have to deal with people in positions of power he could neither fire like his faux apprentices nor ignore. The dictator in North Korea, the Senate majority leader, the judges hearing cases brought against his executive orders, and the president of Mexico were not going to go away, and as president, Trump would not be able to ignore them.

  Trump’s style as president continued his lifelong pattern of ignoring facts, ignoring realities he wished did not exist. Three months after the conversation with the Mexican president—a conversation the contents of which would not become known for another three months—Trump gave an interview to CBS. Appearing on Face the Nation, a Sunday morning politics show, Trump told host John Dickerson that Mexico would pay all the costs. And then he added a Trumpian fact-free flourish: “They’re going to be happy with it. They’ll be very happy to pay.”

  Attorney General Jeff Sessions, appearing on ABC News about the same time, seemed a little more convinced that money would be found. He told George Stephanopoulos, “I don’t expect the Mexican government to appropriate money for it. But there are ways that we can deal with our trade situation to create the revenue for it. No doubt about it.”

  Sessions said, “We’re going to get paid for it one way or the other. I know there’s $4 billion a year in excess payments” to people illegally in the United States—“tax credits that they shouldn’t get.”

  There was some basis for his comment, but it was also Trumpian exaggeration. The $4 billion referred to child tax credits paid to undocumented immigrants for their children sixteen and younger. Over ten years, the total came to $7.6 billion. That number, far below what Sessions said, came from the nonpartisan staff of the congressional Joint Committee on Taxation.

  Trump’s wall will cost $21.6 billion, according to an internal report by Homeland Security, so taking away the tax credits Sessions cited would pay for only roughly one third of the wall.

  But Sessions’s comment also had the economics wrong. Again, this would not be Mexico paying for the wall, but Americans. Stopping child tax credits to people inside the United States who do not qualify because they entered the country without permission would save taxpayers and follow the law. It would stop errors and, mostly, tax fraud, but it still would not result in Mexico paying for the wall.

  But Trump continued to insist that he would make Mexico pay for the wall. Not even the disclosure of his exchange with the president of Mexico, who flatly rejected paying for the wall, seemed to have any effect on Trump’s grasp of the situation.

  At a White House press briefing in August with the president of Finland, Trump was asked if Mexico would pay for the wall.

  “Yes, it will,” Trump said. “One way or another Mexico is going to pay for the wall. It may be through reimbursement. But one way or the other Mexico will pay for the wall. We’re right now negotiating NAFTA. In my opinion Mexico’s been very difficult. Why wouldn’t they be. They had a sweetheart deal for many years. It’s one of the great deals of all time for them, one of the worst trade deals ever signed” by the United States.

  Trump may have stumbled on a truth. Despite all his hard-line talk, and America becoming a net supplier of oil to Mexico, the deficit in goods traded with Mexico soared after Trump took office. The net balance of trade increased in Mexico’s favor by more than a third in the first half of 2017 compared to a year earlier, Census Bureau data showed.

  PART IV

  * * *

  FOSSIL FUELS AND CLIMATE AND SCIENCE DENIAL

  Polluters’ Paradise

  During the administrations of George W. Bush and Barack Obama, Betsy Southerland grew accustomed to speaking directly with the dozen administrators and acting administrators they had appointed to run the Environmental Protection Agency. As director of the Office of Science and Technology working on the Clean Water Act that Richard Nixon had signed into law, it was routine for Southerland to have Christine Todd Whitman, Lisa Jackson, Gina McCarthy, and other administrators pop into her office or ask her to come over to chat.

  To address the complex and subtle issues of how to fulfill the Clean Water Act requirement to “restore and maintain the chemical, physical, and biological integrity of the Nation’s waters,” Southerland often assembled teams to assess the science needed to implement the act.

  “With Gina McCarthy and Christine Todd Whitman and Lisa Jackson and all the others, they would normally take notes. They would debate with us. They would say what they had been hearing from industry and the critiques they had heard” of EPA policies and practices. “They let us know what was on their minds,” said Southerland. And they were open to persuasion and paid attention to the findings of scientists inside and outside EPA, she added.

  That all ended when Donald Trump named Scott Pruitt the administrator of the EPA, an agency Trump had promised he would smash into “tidbits.” Pruitt seemed just the politician to do that. As Oklahoma attorney general, he sued the EPA fourteen times, taking up the cause of energy companies whose suggestions his office sometimes cut-and-pasted into official documents. In his LinkedIn profile, he described himself as “a leading advocate against the EPA’s activist agenda.” Pruitt never stopped by Southerland’s office or summoned her over for a chat. Others who were called in said they usually had to wait because doors to the administrator’s section were locked. Some said they were required to surrender their smartphones, which could record conversations. Sometimes they were told to not take any notes.

  This was not the first time the EPA operated under a president who favored industry over the environment. Ronald Reagan had been a vigorous advocate for reining in the EPA through his administrator, Anne Burford, mother of the conservative, if not reactionary, lawyer and judge whom Trump would name to the Supreme Court, Neil Gorsuch.

  But Reagan was not antagonistic to science, just friendly to industry. Trump was dismissive of science. He called climate change a “Chinese hoax.”

  Pruitt introduced himself to EPA staff by video over the agency’s computer network. He said he wanted to “dig down deep with respect to how we’re going to do business in the future, and get to know you personally and how I can be a resource to you as you do your work.” But he went on to declare that “regulators exist to give certainty to those that they regulate. Those that we regulate ought to know what’s expected of them so they can plan and allocate resources to comply; that’s really the job of a regulator. And—in the process that we engage in, in adopting regulations, is very, very important because it sends a message . . . on how it’s going to impact those in the marketplace.”

  EPA would be “open and transparent and objective in how we do rulemaking and make sure that we follow the letter of the law as we do so because that will send, I think, a great message to those that are regulated, but more importantly, they will know what’s expected of them and they can act accordingly.”

  Pruitt’s framing of the issues revealed his one-sided approach to EPA’s mandate. His only stated concerns were those of industries EPA regulates.

  Pruitt did not talk about why environmental regulations exist: to protect human health and safety, to make sure children are not drinking water laced with lead as happened in Flint, Michigan; to minimize the damage from industrial processes, such as ensuring that fumes from electric power plant smokestacks are not so toxic that they turn the rain falling on northeastern forests acid, killing trees and trout; to make sure that a century of the Cuyahoga River in Cleveland catching fire because of chemical dumping remains history; to ensure that fish caught in the Great Lakes and the Hudson River and the coastal seas are not laced with man-made chemicals that cause cancer in humans who eat those fish; to protect the wildlife and plant life that create enormous amounts of economic value for mankind all on their own.

  * * *

  Trump called global warming “a con” in 2010. Two years later he tweeted “the concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.” Sin
ce then in tweets and speeches he has repeated the charge many times and has cited cold weather and snowfall as evidence that climate change and global warming are hoaxes.

  In these remarks, Trump demonstrated that he does not understand simple terminology, much less atmospheric science. Weather refers to temporary atmospheric conditions like hail, rain, or partial cloud cover; climate refers to long-term weather conditions such as the permanent cold air over Greenland, the dry Sahara winds, or the daily rain high up the mountain on the Hawaiian island of Kauai.

  Three months after launching the campaign, Trump told Hugh Hewitt, a smart right-wing radio talk show host, “I’m not a believer in man-made global warming. It could be warming, and it’s going to start to cool at some point. And you know, in the early, in the 1920s, people talked about global cooling. . . .They thought the Earth was cooling. Now, it’s global warming. . . . But the problem we have, and if you look at our energy costs, and all of the things that we’re doing to solve a problem that I don’t think in any major fashion exists.”

  Trump is entitled to his own opinion, but not, as Senator Daniel Patrick Moynihan used to say, to his own facts. Among scientists whose work appears in top journals, the opinion is near unanimous that climate change is under way and that human activity, primarily burning carbon, is driving that change or at least accelerating it.

  We know how much it costs to clean discharges into the air from automobile and truck fumes, smokestacks, and other human activity. We also know how much cleaning up saves. That’s because Congress has required the EPA to periodically justify the costs of the 1990 amendments it made to the Clean Air Act. Viewed the way a businessman would a potential investment—and Trump boasts that he is a super-successful businessman—the returns are astounding.

  For the three decades from 1990 to 2020, the EPA calculated, the direct costs of the 1990 Clean Air Act amendments will come to $380 billion. The benefits, depending on assumptions, range between $1 trillion and $35 trillion. The central estimate was $12 trillion.