TRUMP'S TARIFF WAR ENDANGERS TRUMP'S TAX CUTS

National Review

 

Trump’s Tariff War Endangers Trump’s Tax Cuts

By Ryan Ellis

March 13, 2025 10:30 AM

 

The president has to make a choice.

 

Since mid-February, the 75 percent of Americans who have tax-advantaged retirement savings vehicles like 401(k) plans and IRAs have seen a near double-digit percent reduction in their stock market portfolios. Four trillion dollars of shareholder wealth has been wiped out in just one month. The cause is universally attributed to the trade war that President Trump started with the United States’ largest trading partner, Canada.

 

Defenders of the president’s policy either deny the tariffs-to-stocks relationship, or rationalize the market correction on the grounds that this trade war will lead to some fantastical renaissance of U.S. manufacturing activity. Unfortunately, what it’s most likely to lead to is the demise of Trump’s crown jewel legislative policy goal — making his Tax Cuts and Jobs Act tax reform permanent.

 

To understand why, look only to what happened this week in the U.S. House of Representatives. The House passed (with Republican votes alone making the majority) a “continuing resolution” to keep the government open for the remainder of the fiscal year. Because there was no need to trade policy concessions for Democrat votes, the bill is an undiluted policy win — it actually cuts discretionary spending year-over-year for the first time in well over a decade, defunds the Democrats’ IRS slush fund, and increases money for defense and border security.

 

There was only one Republican holdout — Representative Thomas Massie of Kentucky, who routinely (effectively) caucuses with the Democratic minority by voting against Republican legislation for being less than perfect in his eyes. Trump took to social media to absolutely obliterate Massie, very likely dooming any hopes he had of succeeding the retiring Senator Mitch McConnell in 2026, and even calling for Massie to be primaried should he decide to run for reelection to the House.

 

Even the Freedom Caucus, hardly team players over the years, lined up behind the continuing resolution, no doubt because their members felt like they couldn’t cross Trump, who is enjoying the usual presidential honeymoon but also has an almost sacramental bond with his political base. The bill passed the House with only Massie dissenting, and could get through the Senate this week with a bipartisan supermajority, despite some resistance. And it’s all thanks to President Trump’s ample political capital.

 

Trump will need every ounce of that political capital to muscle through Congress his goal of making the Tax Cuts and Jobs Act tax reform permanent. It’s terribly important for the country that Trump and congressional Republicans succeed. Failure means a tax increase of over $1,000 per year for the average middle-class family, and much higher tax rates for successful, family-owned businesses. All but the bottom income tax rate will shoot up, the standard deduction and child tax credit will be cut in half, and the dreaded “alternative minimum tax” and the death tax will return for millions of Americans.

 

The only problem is, Trump is lighting his political capital on fire every time he lights America’s 401(k) plan balances, IRAs, and 529 education savings accounts on fire. Already, the president’s approval ratings have started to take a hit, led by public sentiment on his handling of the economy and tariffs. If the trade wars drag on, and that in turn leads to a bear market, it will result in a broad American electorate that no longer trusts Trump on the economy, putting his approval rating underwater.

 

We saw what happens to a president when he’s lost the American people on the economy. President Biden was seen as fiddling while inflation fires burned. Trump could very easily be seen as fighting a personal and quixotic tariff war at the price of Middle America’s retirement and college savings nest eggs.

 

Voters have a pretty straightforward metric for presidents when it comes to the economy: job security, stable prices, and to see their home value and 401(k) balance go up. Stability and normalcy win every time over wild experimentation. The market crash may just be the first shoe to drop. Inflation may creep up as tariffs make everything more expensive. And that’s likely to mean job cuts. It will only get worse the longer the tariff wars drag on.

 

Will President Trump have the political capital on the tax cut that he had on the continuing resolution? Will he be able to muscle a tick-tight House GOP majority into bending toward his will? It’s really up to him. The president has to make a choice: He can have his tariff war, or he can have his tax cut. He very likely cannot have both.