“It’s so hard to get our goods into China. And when we do get them in there they charge us a huge surtax. They call it a surtax or a tariff. Well, I simply call that a tax.” – President Donald Trump
Despite having the most powerful economy on earth, the U.S. way too often reaches for the “gun instead of the purse” according to economists Robert D. Blackwill and Jennifer M. Harris in their new book, “War by Other Means.” They believe that the U.S. has historically lagged behind other nations in using its economic tools to achieve its political objectives. The election of 2016 was a clairvoyant reminder we need a president who’ll make tariffs a salient pillar in our foreign policies.
Tariffs are imposed by a nation on goods imported from another nation. They are trade barriers that raise prices and reduce the availability of goods by raising prices on foreign imports. They are enacted to protect the profits for local producers. The question is do we use them for our benefit?
The tariff concept is as old as working roads and is as dynamic as today’s global trading networks. Tariffs have long been the tools for nations wishing to sway trade dynasties, defend industries, and even avoid wars. From the tenuous trade levies of ancient empires to today’s tariffs, they mirror our global priorities and challenges. Tariffs are the chess pieces that chart the course of economics.
During the Industrial Revolution, tariffs were enacted to project nascent U.S. industries from imports. This led to a debate of protection vs. capitalism. Across the pond, The British Corn Laws, a hotbed for the same debate, were repealed in 1846 that resulted in international economic-tariff dialogue.
“Everything is negotiable. Whether or not the negotiation is easy is another thing.” – Carrie Fisher
From our founding until the end of the 2nd Great War (WWII), the debate about U.S. tariffs and their affect on our economy was a political football by lobbyists and tariff-seeking industries. There were questions about their motives and aberrant deals made with Congress in smoke-filled backrooms.
James Madison viewed tariffs as necessary to raise revenue, but Alexander Hamilton and Henry Clay supported tariffs to stimulate infant industries. Regardless of philosophy, there’s little evidence tariffs drove economic growth in the 19th century. In fact, most all of our founders opposed tariffs.
Corruption and protectionist tariff policy of the late 19th century directly led to adoption of the 16th Amendment and the federal income tax as alternative revenue systems. American trade policy was restructured in 1934 to bypass the disastrous Smoot–Hawley Tariff Act of 1930, which exacerbated the Great Depression and illustrated the economic damaging inequities of protectionist trade tariffs.
Today’s U.S. tariffs on China are a prime example of tariffs in action, aiming to correct imbalances and intellectual property abuse. The EU-US trade tensions exemplify the intricacies of today’s trade relationships, with tariffs used as tools to mediate foreign relations. They ravage our supply chains, alter trade routs and form diplomatic ties. The tariff-trade-game has never been higher for the U.S.
For decades, Russia and China have considered “geoeconomics” as the first resort to undermine American power. For example, China impedes the import of Japanese cars and drugs to express disapproval for their policies. Russia suspends gas exports to tilt global opinion against the U.S.
During his presidential campaign, Donald Trump promised to impose tariffs on about $4.2 trillion in imported goods this year. Just recently, Trump announced 25% tariffs on imports from China with Mexico and Canada to follow shortly. All nations retaliated by raising tariffs on U.S. imports.
Regardless of political perspective, Americans need to understand the potential impact of tariffs on the economy. The problem with broad based economic actions is, people have little knowledge and understanding about tariffs and how they are used to benefit them – or as some think – punish them.
Tariffs are most effective when focused on well-defined tailored goals. They work best as part of a larger strategy. If Americans are looking for a quick-fix to correct our trade deficits, tariffs are not the answer.
“Truth will always be truth, regardless of your lack of understanding.” – Clement Stone
Recently, U.S. steel and aluminum producers have faced chronic oversupplies caused by subsidies given by trading partners’ governments, who are also the world’s worst polluters. Americans could help cut emissions in these countries and improve their economies with tariffs. This will cut down on market-distorting subsidization of exports, reduce supplies and easily improve industry profits.
There are many reasons to target commodities with tariff protections today. They include national security, supply chains and combating monopolies from less friendly countries as we learned from during COVID-19. Tariffs protect fragile global production created by corporate greed. Tariffs are a useful, valid policy tool that provide narrow, targeted protections for key global economic sectors.
Tariffs can also be used to shield U.S. workers from labor abuses among trading partners. If tariffs are higher for countries that routinely fail to protect the fundamental rights of workers and lowered when a country makes a genuine commitment to protect these rights, the benefits of international competitiveness through wage suppression would be reduced and many times be eliminated.
In today’s geopolitical climate, tariffs are important to maintain world peace. Stanford Press says, “No nation has benefited more from the 1960s free market trade era than China.” China has used this wealth to advance its communist agenda and extend its global influence to offset American world peace. China continually violates treaties by entering foreign waters controlled by the UN.
China’s military actions must be viewed as the biggest threat to world peace. Global nations could deter China’s future political ambitions if they agreed to collective tariffs with hefty penalties for all violations, enforced by the UN. More times than not, peace cannot be kept strictly by force; it can only be achieved by a global, mutual understanding of what the world would be like without it.
Tariffs are absolutely a key tool of smart industrial and trade policy. But on their own, tariffs cannot and should not be the centerpiece of a national economic strategy. This would represent a gross overuse of a tool for a purpose it is not suited for and would cause damage to the entire economy.
Just as our founders believed, economists are collectively skeptical of tariffs. They consider them the most inefficient way for governments to raise money and promote prosperity. Until the people understand tariffs are a tool to help governments achieve political goals, not level economic playing fields, they will continue to gripe and moan and consider them another sneaky backdoor tax.
“As history has repeatedly proven, one trade tariff begets another, then another – until you’ve got a full-blown trade war. No one ever wins, and consumers always get screwed.” – Mark McKinnon
This article was originally published at www.thecentersquare.com
