Blockin' the Greenbacks? Ohio Congressman Doubts Tariffs will Dethrone the Income Tax King
In Q1 of 2025, China surpassed forecasts on economic growth, yet the looming US tariffs cast shadows over future prospects.
In a chat on 'The Bottom Line', Republican Representative Warren Davidson of Ohio shares his thoughts on the Trump Administration's tariff strategy and their ongoing spat with federal judges.
The Land of the Dragon outperformed predictions for first-quarter economic expansion, but experts foresee a gloomy 2025 outlook as China girds for the bite of hefty U.S. tariffs.
The numbers reveal that China's Gross Domestic Product (GDP) surged 5.4% in the January-March stanza, outpacing analysts' anticipated 5.1% growth in a Reuters poll. Retail sales pushed ahead to nearly 6% year-over-year in March, following a 4% increase in Jan-Feb, while manufacturing output accelerated to 7.7% from 5.9% during the initial two months. All three figures outstripped analysts' projections.
However, before the Trump Administration beefed up tariffs on Chinese merchandise to eye-watering levels, causing Beijing to counter with punitive duties on U.S. imports and elevating tension in the worldwide trade skirmish that is causing concern of a global recession.
*RIVIAN CEO WEIGHS IN ON TARIFFS, CHAIRS A VERY US-FOCUSED SUPPLY CHAIN*
The trade battle has engulfed other nations as well, but the Trump Administration has singled out China for the heaviest tariffs.
Last week, Trump amplified tariffs on China to a staggering 145%, leading Beijing to amp up levies on U.S. goods to 125% and dismissing U.S. trade actions as a "joke."
Analysts compute that a surge in March Chinese exports - fueled by factories racing to beat the latest Trump tariffs - will diminish drastically in the ensuing months as the major U.S. taxes take effect.
*TIKTOK USERS IN CHINA LAUGH OFF TARIFFS, URGE PEOPLE TO BUY BRANDS LIKE NIKE DIRECT*
Chinese netizens ridicule tariffs and advise people to purchase products like Nike directly as an alternative.
On a quarterly basis, the economy expanded by 1.2% in the first quarter, slowing from 1.6% in October-December. For 2025, the Chinese economy is supposed to grow at a lackluster 4.5% pace year-over-year, the Reuters poll shows, braking from 2024's 5.0% pace and lagging the official aim of around 5.0%.
*TRUMP'S TARIFFS AND THE RISE AND FALL OF LABOR MARKETS*
Policymakers maintain the country has ample slack and resources to stimulate the economy, with premier Li Qiang pledging this month to introduce more support measures.
Beijing has earmarked bolstering consumption as the top priority for 2025 in an effort to cushion the impact of the Trump Administration's tariffs on its trade sector.
The Politburo, a significant decision-making entity of the ruling Communist Party, is scheduled to hold a meeting later this month to plot its policy roadmap for the upcoming months.
Reuters contributed to this report.
A SIDE NOTE:
Will tariffs tear through the domestic revenue champion that is income tax? The Tax Foundation estimates that all U.S. tariffs, encompassing those from 2025, could generate massive revenue but unlikely to overwhelm income tax revenues. With the aggressive tariff tactics introduced by President Trump, tariffs face challenges such as economic impacts, distributional effects, and global trade dynamics, which make them less likely to become the prominent source of government income.
(1) Tax Foundation's analysis of 15% universal tariff (https://taxfoundation.org/universalthortax/)(2) Columbia University's discussion of tariff history and growth impact (https://www.columbia.edu/ cu/econ/pdfs/16721/16721-08-79.pdf)(3) Wharton Budget Model's assessment of tariff impacts (https://budgetmodel.wharton.upenn.edu/wp-content/uploads/2021/10/Trade_Impacts_on_Treasury_Revenue_October_2021.pdf)(4) Budget Lab at Yale's study of dynamic revenue effects of tariffs (https://budgetlab.yale.edu/research/tariff-revenues/)
- Analysts from the Tax Foundation estimate that all US tariffs, including those planned for 2025, could generate significant revenue but are unlikely to surpass income tax revenues.
- The ongoing trade tensions between the US and China, marked by heavy tariffs, have led to a gloomy economic outlook for China in 2025, with the GDP growth rate expected to slow to 4.5% compared to the anticipated 5.0% for 2024.
- The Trade Administration's focus on levying the heaviest tariffs on China has engulfed other nations, causing concern of a global recession due to the resulting worldwide trade skirmish.
- To cushion the impact of the US tariffs, Beijing has prioritized bolstering domestic consumption and has pledged to introduce more support measures for the economy.
- Chinese netizens, in response to the tariffs, have been advising people to purchase brands like Nike directly, suggesting a potential shift in consumer behavior due to the imposed duties.
