Switzerland recently announced it plans to eliminate tariffs on 95 percent of all imports. Donald Trump recently announced that as president he would impose tariffs of at least 10 percent on virtually all imports to the United States. The Swiss have it right on both the economics and the politics.
In regard to Switzerland, Bloomberg News has reported, “Starting in January, 95% of all imports will enjoy duty-free status, promising more affordable goods like cars, household appliances and clothes. That’s up from 81% currently.” Only agricultural products will retain some tariffs.
Why are the Swiss taking this step? Even though the country concedes it will lose some revenue, the measure is “expected to boost competitiveness and moderate the elevated prices for everyday items.”
Swiss consumers, like consumers in most countries, have been struggling under the rising prices associated with inflation. Eliminating tariffs will likely lead to lower prices for consumer goods and services. Not huge decreases, to be sure, but any price reductions will help struggling families.
That’s because tariffs are a tax imposed on individuals and companies that buy imports. Tariffs are not paid by the countries exporting the items, as Trump frequently asserts. Tariffs are paid by those in the importing countries.
The point is that eliminating tariffs in inflationary times is good for an importing economy like Switzerland—and the United States.
Which leads us to why eliminating tariffs is good politics: it’s a tax cut. Since tariffs are a tax, cutting tariffs is a tax cut that will help many businesses that import products.
By contrast, Trump has proposed a 10 percent across-the-board tariff on all imports. If he were to succeed—and remember, he unilaterally imposed tariffs on steel and aluminum without congressional approval—Americans would be forced to pay higher prices for imported goods. Those higher prices would trickle down through the economy, putting upward price pressure on everything.
And it’s Americans, not the exporting countries, who would be paying those tariff/taxes. In other words, Trump is proposing what amounts to an across-the-board tax increase.
Lower prices and lower taxes—the Swiss model—are good for the economy and economic growth. Higher prices and higher taxes—the Trump model—are bad for the economy and economic growth.
There is very little reason to think that this explanation will have any bearing on Trump’s thinking. He had several good economists around him in his first term, notably Larry Kudlow, who understand tariffs’ negative impact on an economy.
Yet it’s still worth pointing out: The Swiss have it right, Trump has it wrong.
December 19, 2023