The Case for Tariffs
Economists generally support immigration, but to be a nation requires borders so there’s clearly some level at which we should limit foreigners. This doesn’t make one a xenophobe.
Economists generally oppose tariffs, but to be a nation requires borders so there’s clearly some level at which we should tax foreigners. This doesn’t make one a protectionist.
During the Industrial Revolution, the US had the most protected economy in the world with a tariff rate between 20% — 50%.
By 1916, we became the most powerful country in history by surpassing the output of the entire British empire. The US then pressured nations to lower their tariffs so we could more easily flood their markets with our goods.
But by the 1970s, America started to become a victim of our own success because by exporting so much stuff we made it easier to not just send our goods, but also our factories.
Overall, just as I believe in a strong border even though I’m pro-immigrant I believe in a strong border even though I’m pro-trade. In other words, despite the fear-mongering of our globalist oligarchy I believe in borders!
I don’t think we should go back to a 50% tariff rate because as economists point out tariffs (aka import taxes) reduce economic growth, which FYI all taxes do, but if we’re going to have a government then we have to tax so the only honest way to judge import taxes is by comparing them to other taxes. I think a tariff is a less bad tax than an income, corporate, or payroll tax (just to name a few of the 97 taxes in the federal tax code) therefore I’d like to raise the former so we can cut and abolish some of the latter.
Tariffs are legal under the Constitution. If we had a constitutional-size government and no welfare-warfare spending, a uniform tariff to cover the cost would certainly be a better way to raise revenue than an income or value-added tax. — Ron Paul
I believe in an across-the-board 10% tariff.
In addition, I believe in an additional 5% — 10% “tyranny tariff” tacked onto nations that prohibit free speech such as Russia, China, and Iran because in our global economy free speech threatened anywhere threatens us everywhere. A tyranny tariff is in my opinion a more coherent way to discourage despotism than armed conflict or a hodgepodge of temporary sanctions.
But let me be clear — I’m not saying we should increase federal revenue (it’s already at unprecedented levels), but simply that a greater percentage of it should come from tariffs again.
Tariffs are preferable to virtually every other federal tax because…
It’ll reduce our trade deficit. Our trade deficit is mostly due to abandoning the gold standard, but an open economic border + cheap foreign labor has increased it too. Milton Friedman was a supporter of the trade deficit because as he said… wouldn’t you want more stuff coming into your home than going out?
But the moral question is would it be right?
I think as individuals and nations we should strive to give back 10X more than we ever receive rather than trying to game our currency so as Milton Friedman concluded, “a sustained trade deficit is the best possible outcome….we get physical goods like cars, flash memory, oil, computers, toys and all sorts of other goods for cheaply produced paper known as currency.”
In other words, we’re exporting our ability to manufacture physical goods in exchange for being the world’s paper-pusher.
Normally, trade deficits are self-correcting because as a country’s trade deficit grows its currency depreciates, which makes foreign goods more expensive, but America begs China to loan us more money so we can continue to buy their stuff.
But if three-of-the-top-four GDPs are net-exporters then what do their leaders know that our academics sneer at as a desirable outcome?
Perhaps, I’d be more sympathetic of our trade deficit if it wasn’t built on the back of an authoritarian regime’s credit card.
It can feel great to run up thousands of dollars on a credit card while just paying the interest. As Daniel Griswold of the Cato Institute said, “Expanding trade deficits are almost always a sign of economic expansion and robust investment,’’ and yes, of course, spending usually expands an economy, but the problem with deficit-spending is that overtime interest payments will eat up a larger and larger part of our budget. Eventually, the shopping spree will have to come to an end. Our federal deficit fuels our trade deficit, but just like the trade deficit, many academics believe our federal deficit is a good thing because they see it as an “investment,” but the problem with that logic is that US productivity growth has declined not despite, but likely because of our unprecedented debt which has increasingly driven away genuinely productive investment.
Our house of cards can only stand so long as China plays nice, but Xi Jinping could wake up tomorrow and stop lending us money, which would send us into a monetary crisis.
Is it any wonder why in the midst of a CCP-created pandemic and genocide China wasn’t held accountable but instead asked to hold the Olympics?
According to one model, a permanent increase in tariffs led to less borrowing and therefore a reduction in the trade deficit. In 2019, the U.S. trade deficit declined in part because of Trump’s tariff increases.
The second reason tariffs are preferable to virtually every other tax is because of… ‘Merica! The Hamilton Tariff of 1789 was the first major piece of legislation signed by George Washington because our Founding Fathers wanted a reliable source of income that was relatively unobtrusive.
In the 19th century, Senator Henry Clay developed the “American System,” which consisted of improving infrastructure and increasing tariffs in explicit opposition to the “British System” of free trade.
Abraham Lincoln called himself a “Henry Clay tariff Whig” where he declared: “Give us a protective tariff, and we shall have the greatest nation on Earth.”
In 1896, the GOP platform pledged to:
Renew and emphasize our allegiance to the policy of protection, as the bulwark of American industrial independence, and the foundation of development and prosperity. This true American policy taxes foreign products and encourages home industry. It puts the burden of revenue on foreign goods; it secures the American market for the American producer. It upholds the American standard of wages for the American workingman.
The third reason tariffs are preferable to virtually every other tax is because they lead to greater economic development.
Britain became the most powerful country in the world with high tariffs, but then they abandoned them. After realizing they had lost much of their production capacity to protectionist countries like the US and Germany, the UK reintroduced higher tariffs in 1932.
According to economist Ha-Joon Chang, East Asian countries with more protectionist policies (China, South Korea, Japan, Taiwan) have had faster economic growth than their neighbors whereas free-trade African countries are less industrialized today than they were four decades ago.
Tariffs arguably increase economic development because they give “infant” companies time to develop. Hamilton argued that despite tariffs causing an initial “increase of price,” once a “domestic manufacture has attained to perfection… it invariably becomes cheaper.” Tariffs can also save “aging” industries from extinction where foreign countries may have pursued “dumping” policies to strategically kill off their foreign competitors to gain a strategic upper hand in the global supply chain. Ultimately, a country is not what it eats; a country is what it produces.
Fourth, tariffs attract manufacturing jobs.
A significant part of China’s rise has come from companies relocating there. As China becomes even more powerful we can expect them to demand more businesses to relocate there if they want to have access to their massive consumer market.
High employment is particularly important in democracies because workers, especially skilled workers, are less likely to vote for tyranny than those who live off entitlements.
We’ve lost millions of manufacturing jobs to automation and globalization. How much we can attribute it to one over the other is difficult to discern, but according to Robert Scott, director of trade and manufacturing policy research at the EPI, “We’ve lost nearly five million manufacturing jobs in the last 20 years. At least half of these job losses are explained by the growth in the China trade deficit.”
Fifth, tariffs decentralize power. By offering a soft protection for local industry a country can better maintain some of its national and cultural identity.
For example, if each country had a 10% tariff then it would incentivize the development of their own fast food chain, which means that not only would citizens still get to enjoy the globalist brands, but they could also take pride in their own local brand, therefore, increasing global product diversity.
Sixth, tariffs are harder to avoid.
If the US increases its corporate tax then more corporations will move overseas to avoid the tax whereas if we increase tariffs then they have to come back if they want to avoid the tariff. Money flows like water to the places of least resistance.
Seventh, even tariff skeptics like Milton Friedman acknowledged that tariffs can be useful for national security.
The pandemic revealed how the US is too dependent on other countries for key resources. We live in an age where the economy and security are completely intertwined and where a nation’s power is largely determined by its collective intelligence (artificial + human), which means if the US wants to maintain its preeminent position then we must protect our machinery and intellectual property with the same urgency as we do our population. An economy dependent upon a foreign power for virtually all its energy, tech, food, and manufacturing isn’t truly free. Hamilton understood that political independence was predicated upon economic independence.
Finally, the U.S. government has always and will always give preferential treatment to U.S. businesses.
After the US government decreased tariffs it turned around and increased corporate subsidies. The Ivory Tower often neglects political realities for theoretical abstractions. In my opinion, if DC is going to give US businesses a leg up then I rather they do so by taxing foreign products rather than subsidizing domestic ones. In other words, if we have to choose, which history shows we do, then I choose tariffs over subsidies.
In the end, the gravy train hasn’t stopped yet. Big Finance and Big Education are built upon massively indebting Americans and so, of course, they’re going to be sympathetic to federal and trade deficits too, but if we’re going to take back our freedom then we must do so with our own two callous hands.