The Trump-VAT: Deficits and Deceits
Punishing US citizens for systemic domestic economic policy failure
Published: 2025-04-06
Deficits and Deceits
On April 2nd, 2025, US President Trump declared a national emergency. He invoked both the International Emergency Economic Powers Act and the National Emergencies Act in the preamble to his Executive Order to address the
large and persistent annual trade deficits in goods, including the economic and national security implications and risks resulting from such deficits
Two risks, declares the policy, are caused by annual deficits in trade in goods (and not services). Those risks are to the national economy and national security.
The 17th paragraph of the order's preamble described the national security implications with:
Increased reliance on foreign producers for goods also has compromised U.S. economic security by rendering U.S. supply chains vulnerable to geopolitical disruption and supply shocks.
[Executive Order]
Further down, the order provides some specifics on the sectors of the US economy which the order claims to address:
Just as a nation that does not produce manufactured products cannot maintain the industrial base it needs for national security, neither can a nation long survive if it cannot produce its own food.
[Executive Order]
The policy echoes analysis by various policy advising corporations, including RAND (on behalf of the military industrial complex):
Over time, the persistent decline in U.S. manufacturing output has reduced U.S. manufacturing capacity. The need to maintain robust and resilient domestic manufacturing capacity is particularly acute in certain advanced industrial sectors like automobiles, shipbuilding, pharmaceuticals, technology products, machine tools, and basic and fabricated metals, because once competitors gain sufficient global market share in these sectors, U.S. production could be permanently weakened. It is also critical to scale manufacturing capacity in the defense-industrial sector so that we can manufacture the defense materiel and equipment necessary to protect American interests at home and abroad.
[Executive Order]
The "Reciprocal Tariffs" policy declares itself as an "ad valorem" tax on a broad range imported goods. Importers must pay a tax as a percentage of the value of the goods to the US government to sell them in the US market. The importer has no choice but to charge the consumer this government tax. It is a VAT type tax on imported goods to be paid by the US consumer via the importer to the US government. Henceforth, the policy will be referred to as the Trump-VAT.
The Trump-VAT is supposedly but one half of a two part policy. The other theoretical half was promoted by Andrew Duehren in an "analysis" article from the New York Times:
Congress [should] also cut taxes on income.
[NYT]
However, the clause in the Trump-VAT which describes its termination or modification does not mention any potential income tax adjustment:
These additional ad valorem duties [Trump-VAT] shall apply until such time as I determine that the underlying conditions described above are satisfied, resolved, or mitigated.
[Executive Order]
Those pre-conditions are that the current account deficit is re-balanced to reduce the growth of US government debt, and that manufacturing industries "like automobiles, shipbuilding, pharmaceuticals, technology products, machine tools, and basic and fabricated metals" have replaced their foreign competitors.
Presentation
The announcement of the policy in the White House garden on a windy Spring day was performative. Trump stated that he was disappointed that he could not wield the large plaque due to the weather. He had to make do with the smaller tabulation of percentage figures for his Trump-VAT. The professionally produced 5 minute video released by the White House to inspire the citizenry emphasized the pageantry and import of the policy and occasion.
The theatre of the presentation was important for two obvious reasons. Firstly, the policy needed to be presented as a justified response to aggressive economic behaviour by what amounts to the rest of the world. Secondly, because US policy elites assume a low level of education in the polity they view themselves as ruling, their description of the policy needed to be simple. That simplicity was "We're taxing them back!"
The Trump regime is blaming the world for the persistent failure of US domestic economic policy in an attempt to dupe its own base.
The US citizenry are not simpletons. Neither does the US corporate media have a stranglehold on providing their simplistic analysis of policy. This newsletter provided clear analysis in its last article from Bernard at Moon of Alabama. Reinvigorating manufacturing, and especially advanced manufacturing, "requires well coordinated long term projects. Research, training, infrastructure development, capital allocation and market protection all need to work together over several years if not decades."
It was a comment to the MoA article which the nail on the head. If the US wishes to achieve both goals of re-industrializing and holding its current account in balance, it can do no better than mimic the policies of China. The primary weakness of the US is long term policy stability. It needs to inspire confidence through policy stability to encourage the capital investment required to build the industries which will, over time, address the national security threats and balance the books. However, even if income taxes are reduced, they are unlikely to come close to offsetting the cost to US households. This will generate a political response which will undermine the industrial policy's longevity and, thus, efficacy.
Nonetheless, the Trump-VAT will remain, though perhaps at reduced rates. It will amount to the US government increasing taxes on its citizenry to fund its profligacy.
Tariffs out of a hat
One the beauties of the pluralized media is area experts chipping in to explain the often daft mechanisms behind the smoke and mirrors of policy. On that theatrical chart wielded by DJ Trump were the magical numbers of the Trump-VAT.
Again, it was Bernard from MoA who cited the individual who derived the source of the numbers.
James Surowiecki @JamesSurowiecki - 0:22 UTC · Apr 3, 2025
Just figured out where these fake tariff rates come from. They didn't actually calculate tariff rates + non-tariff barriers, as they say they did. Instead, for every country, they just took our trade deficit with that country and divided it by the country's exports to us.
[via MoA]
Bernard continued by citing another area expert, Arnaud Bertrand, who expressed the meaninglessness of the percentages for the Trump-VAT:
The way the tariffs are ACTUALLY calculated appears to be based on a simplistic and economically senseless formula: you take the trade deficit the U.S. has with a country, divide it by that country's exports to the U.S and declare this - falsely - "the tariff they charge on the U.S."
[via MoA]
The falsely applied description of “reciprocal tariffs” could be described as "making shit up".
Decline
The Trump-VAT is a declaration of the failure of economic sanctions as a foreign policy instrument to coerce nation states.
US sanctions threaten legal action or deny access to financial instruments to foreign persons, companies and banks. They represent the abuse of US financial institutions by the government to achieve foreign policy goals. Col. Wilkerson recently related a comment by a US official. If the US was to revoke all sanctions, said the official to Wilkerson, it would take 10 years for the government to remove them. As Prof. Marandi has repeatedly informed, even after the JCPOA (Iran "nuclear deal") was signed, the US (under President Obama) did not remove the sanctions the US had imposed. Trump then, during his first presidency, unilaterally withdrew from the agreement. The sanctions remain.
After Russia began its Special Military Operation internationalizing the civil war in Ukraine, the US and EU sanctions on Russia failed to apply the economic pressure to force a coup on the Russian government, as intended. The reason for this failure was that through organisations like BRICS+ and the SCO, sanctioned nations have collected and created sanctions avoiding trade mechanisms. One of these, from Russia, has been labeled as the "Shadow Fleet", which amounts to oil transport vessels not registered in London. Russia has quite some of them:
[S&P Global via Simplicius]
The simplest and most powerful sanctions avoidance mechanism employed by member states of BRICS+ and the SCO has been dubbed "de-dollarization". It amounts to settling international trade in the national currencies of the trading nations, thus avoiding both US dollars and US financial institutions.
The Trump-VAT is a based on a different class of economic policy than sanctions. It threatens to the rest of the world by increasing the cost of access to the US market, rather than attacking a named entity. It is a fundamental admission of the defeat of economic sanctions as a foreign policy instrument. The US is now attempting to beat its rivals over the head by forcing its own population to pay for foreign competitors to sell in its own market.
The Trump-VAT is a deceitfully calculated and presented declaration of defeat.
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Sources
Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits; US Executive Government; The White House; 2025-04-02 (archive)
Trump's Impoverishing Tariffs; Jeffrey Sachs; Consortium News; 2025-04-03
Transactional weakness tips the balance of power - 'Hold to no illusions; there is nothing beyond this reality'; Alastair Crooke; The Unz Review; 2025-03-31
Devaluing the US dollar is a wider though quiet potential ambition of the policy
White House Lacks Financial Literacy - 'Tariffs' Show; b.; Moon of Alabama; 2025-04-03
How Trump’s Tariff Tizzy is burning down the house; Pepe Escobar; The Unz Review; 2025-04-03
"For all practical purposes, Trump is burying the WTO."
Trump’s Trade Policies: A Fast Track to Economic Ruin; Michael Hudson; The Unz Review; 2025-04-03
Trump Tariffs Will Concentrate Wealth Even More; Omar Ocampo; Consortium News (republished from Inequality.org); 2025-04-04
Ad valorem tax, Wikipedia
"An ad valorem tax (Latin for "according to value") is a tax whose amount is based on the value of a transaction or of a property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT)."
Whiplash Effect as "Pissed Off" Trump Flips Again; Simplicius; Simplicius' Garden of Knowledge; 2025-04-02
Republicans Like to Cut Taxes. With Tariffs, Trump Is Raising Them. - The New York Times; NYT; Archive.today; 2025-04-05
Tariffs & the Coming Economic Collapse; Glenn Diesen interviews Peter Schiff; Glenn Diesen; 2025-04-05
Copyleft: CC0
The US citizenry have indeed proven themselves to be simpletons.
How many billions have gone to US weapons manufacturers to fund wars in Ukraine avd Israel the past couple years? And what has ANY of that done to better the life of the average American?
Yes they are simpletons. And will again be fleeced here.
Unlike the Dems, who try to deceive with phoney candidates in elections , it’s should be clear that the GOP won’t even hold this next election at all. So people won’t even get to voice any dissent.