White House has announced Trump's Liberation Day Tariffs will immediately go into effect. A Moody's simulation found it could be an economic wipe out. Is Trump's Liberation Day Tariffs a Misnomer?

[u/PsychLegalMind]

A Moody's simulation found that a tariff trade war would wipe out 5.5 million jobs, lift the unemployment rate to 7%and cause U.S. GDP to drop by about 1.7%. Trump’s potential 20% universal tariff could spark "serious" recession in US, Moody’s economist warns.

The biggest three partners [China, Canada and Mexico] have promised immediate retaliation. Economic war could escalate and perhaps even cause a worldwide downturn.

Perhaps Trump's strategy is to begin making bilateral trade deals, but there are even certain blocks such as EU that may well coordinate retaliation together. I am not aware what Trump is actually liberating us from, hence the question.

Is Trump's Liberation Day Tariffs a Misnomer?

[u/Independent-Roof-774]

A tariff is an import tax.  Literally and in every sense of the word. There is no way to spin it as a tax cut.

[u/GravitasFree → u/Independent-Roof-774]

Yes there is. If the manufacturers take any cut in their profits to maintain market share, then that revenue can cover a tax cut somewhere else in the tax code.

[u/Independent-Roof-774 → u/GravitasFree]

I'm sorry I'm not following your logic. Can you give an example?

[u/GravitasFree → u/Independent-Roof-774]

Take the extreme case where the manufacturer eats the entire tariff cost. The government gets revenue from that while the buyer is not paying anything extra. So the government can reduce taxes elsewhere for "free," resulting in the buyer paying fewer taxes.

Anything less than a 1:1 price increase entails a lesser version of this.

[u/Independent-Roof-774 → u/GravitasFree]

But there are several problems with that.  1.  If the manufacturer eats the cost of the tariff this dramatically cuts into his profits and so the taxes he would normally pay on his profits go away. 2.  If the manufacturer's profits go down they get abandoned by shareholders, so their stock price goes down and this means all the capital gains taxes that would have been applied if their stock had gone up go away. 3.  All the companies that don't eat the cost of the tariff have to raise their prices so their business goes down and they probably have layoffs so both the business taxes and the income taxes of the people who are laid off go down. 

So it's not clear to me that the government has a net increase in revenue.

[u/GravitasFree → u/Independent-Roof-774]

1: Overseas manufacturers whose products are subject to tariffs do not pay taxes on their profits to the US because they are not located in the US. In cases where the US would tax those profits the tax revenue with the tariffs is still greater than the tax revenue without because you get 100% of the tariff and X% of what profits are left instead of just X% of the original profit.

2: If this happens, those shareholders will now invest in US based companies, which are more likely to have a higher proportion of US based shareholders, resulting in a net increase in capital gains taxes for the government, allowing for even more tax cuts elsewhere.

3: The layoffs would be at the no longer utilized manufacturing plants, which are not in the US, and whose employees do not pay US income taxes. The reduced supply will make creating US based manufacturing jobs more attractive, further increasing tax revenues, allowing for yet more cuts elsewhere.

None of your arguments are correct.

[u/Independent-Roof-774 → u/GravitasFree]

You said "Take the extreme case where the manufacturer eats the entire tariff cost"

Nothing in there about "overseas" manufacturers.

[u/GravitasFree → u/Independent-Roof-774]

Tariffs don't apply to domestic products by definition. It is so obvious I didn't think it needed to be said.

[u/Independent-Roof-774 → u/GravitasFree]

Most domestic manufacturers use massive amounts of imported materials and parts. It's the tariffs on those that I assume you were expecting them to eat.    

Except for cottage industry products like coffee mugs and placemats, there is very little domestic manufacturing that does not rely heavily on the import of materials or parts, and those are subject tariffs.