CLAIM: Kamala Harris on Tuesday night slammed Donald Trump for proposing a national sales tax.
Harris referred to the “Trump sales tax” and claimed it would increase prices of goods by 20 percent.
Verdict: False.
President Trump has not proposed a national sales tax.
Harris was likely referring to Trump's proposal to raise tariffs on imports, which would be paid not by consumers but by companies that import goods from overseas – they are not sales taxes.
Studies of the tariffs imposed by President Trump from 2017 to 2021 in office have found that some of the costs of the tariffs ultimately fell on importers and some on exporting countries. The tariffs were not passed on to consumers and did not act as a tax on households, as evidenced by the low rate of consumer inflation during the Trump administration.
Tariffs do not tend to raise consumer prices. Mary Amity of the Research and Statistics Group at the Federal Reserve Bank of New York, Stephen Redding of Princeton University, and David Weinstein of Columbia University. As one of the most widely cited studies of President Trump's tariffs writes:“Trade theory has long emphasized that when a large country imposes tariffs, prices abroad should fall. (The study, incidentally, was not kind to tariffs; it concluded that U.S. businesses pay most of the tariffs, but it did not conclude that the tariffs are passed on by businesses to households.)
As Breitbart Business Digest explained on Monday:
When Trump took office promising to tear up international agreements and impose tariffs, many critics were quick to claim he was trying to start a trade war. Mainstream economic forecasters on both the left and right confidently predicted that Trump's tariffs would hurt the U.S. economy and drive up consumer prices.
Eight years ago, these arguments were at least superficially plausible: it had been generations since the United States had deployed a robust trade strategy that included broad tariffs, not just spot tariffs on products that had been illegally dumped into the U.S. market. Tariff opponents did not have much evidence to back up their arguments, but tariff supporters also did not have much direct evidence, since the strategic use of trade tariffs had been so long ago.
Trump had economic theory on his side. Though you wouldn't know it from the way many economists talk about tariffs, standard economic theory supports Trump's argument that tariffs are often paid by the exporting countries that are subject to the increased taxes, not by countries that import goods. Trade theory has long known that when a large country like the United States imposes tariffs, prices abroad tend to fall because exporting countries have no choice but to liquidate their surplus production.
In fact, economists have long known that imposing tariffs can significantly improve the terms of trade and actually lower the domestic price of the imported goods that are subject to the tariffs — known as Metzler's Paradox, named after the economist Lloyd Metzler, who first wrote about the idea in 1949. Moreover, tariffs can also increase world production of the tariffed goods by increasing investment incentives for domestic production, putting downward pressure on prices.
Price theory suggests that tariffs are unlikely to raise prices for consumers. Many people imagine that the price they pay at the register is an accumulation of input costs, but the reality is nearly the opposite: Consumer demand determines the price of the final product, which in turn determines the price of the parts and labor that go into making that product. So if tariffs increase import costs, there is no realistic way for merchants in a competitive economy to pass the costs on.
In any case, imports account for only a small portion of consumer purchases, so even if the cost of the tariffs were passed on to consumers, the impact would not be equivalent to a domestic consumption tax.
there were Similar claims When President Trump imposed tariffs in 2019, he predicted that the tariffs would increase consumer prices, but they did not.
