Countries have relied on tariffs for hundreds if not thousands of years as a major source of revenue, long predating the income and consumption taxes that are the revenue workhorses of states in the 20th and 21st centuries. This is primarily because the logistics of taxing trade at a fixed number of ports are much simpler than modern revenue methods.
Convincing people to pay higher taxes is hard; one argument you could muster in favor of high tariffs is that they will protect domestic industries from foreign competition. If I worked in a factory that was being undercut by foreign competition, I would want tariffs to protect my job. So would you. Who wouldn’t?
If I were a member of Congress who had a whole bunch of constituents who worked in a factory that was being undercut by foreign competition, plus a bunch of other constituents who had those factory workers as customers for their restaurants and other small businesses, plus had a bunch of local government officials telling me the factory is central to their tax base, I would want tariffs to protect my district. So would you. Who wouldn't?
This is why, traditionally, concentrating trade policy power in the hands of the president has been a policy goal of free trade proponents.
Protectionism works for the people it protects. The problem is that while providing a large, visible win to a small number of people, it also generates small, invisible losses for a large number of people. If you protect one industry, you could have a political winning hand. But if you protect every industry simultaneously, you’re just going to make everyone worse off. The president, more than anyone else in the system, benefits from strong economic growth and suffers from national economic problems. He is seen as the person whose interests align with making free trade deals that broadly lower barriers and spark growth, despite localized problems.
It’s really striking that across all the literature on the localized economic costs or political fallout of NAFTA or the “China Shock,” none of this research calls into question the basic point that these trade deals made most Americans better off.
Donald Trump was a hard-core protectionist long before he was a Republican Party politician and long before the rise of China or any of the contemporary strategic concerns about that aspect of international commerce. If you go back to the 1980s, you can find plenty of examples of him thundering about how America’s allies — especially Japan — were “ripping us off” by running trade surpluses.
Because the US running a trade deficit was new in the 80s, this kind of thing was a staple of Democratic Party rhetoric at the time. Here’s Jesse Jackson at the 1988 Democratic Convention: “Germany and Japan are now creditor nations; that means they've got a surplus. We are a debtor nation. It means we are in debt. Let them share more of the burden of their own defense.”
It’s underrated that the 1980s/1990s dynamic — Democrats led the charge urging Ronald Reagan to engage in more protectionism and then the left wing of the party (at the urging of industrial unions) rebelled against the Clinton administration’s embrace of NAFTA — was a reversal of the historical pattern. From the time of Andrew Jackson through FDR and the Kennedy Round of GATT during the Great Society, it was always the left position in American politics that tariffs were regressive and bad. Trump’s reversal of Reagan/Bush trade policies was noteworthy, but I am pretty sure Joe Biden was the first Democratic Party president in centuries to not lower trade barriers.
Targeting bilateral trade deficits — the deficit between any given pair of countries — with tariffs, à la Trump, is just incredibly stupid.
In the 12th Century, England exported tons of wool to Flanders, where they had a textile industry and then they only imported back a modest amount of apparel. Flanders made up that deficit with England by exporting apparel to lots of countries throughout Europe. England used its bilateral surplus with Flanders to import wine from France. Countries have different endowments (England was full of sheep) and comparative advantages (Flanders was good at making clothing), and there’s no reason for bilateral flows to balance. Just picking random country pairs and screaming about it is pointless.
That America runs a persistent aggregate trade deficit, by contrast, is genuinely noteworthy. This was not the case for the first two hundred years of our history, but it has consistently been true since the late 1970s.
The flip side of the persistent trade deficit is that the United States receives a lot of inbound investment from foreigners. People like to buy shares of stock in American companies. They like to invest in American startups. They buy American government bonds as a source of safety. Just in terms of a literal sense of how it works, this is the deal with the trade deficit: Foreigners are not “ripping us off” or getting rich off of us, they are investing and we are consuming.
Losing weight with healthy eating and exercise is a good idea; losing weight by getting cholera is not. By the same token, if the United States had a higher domestic savings rate, the trade deficit would go down (or possibly even reverse) and this would probably be change for the better. On the other hand, if the desirability of the United States as a destination for foreign investors collapsed, that would probably also push the trade deficit down, but that would be bad.
A lot of Asian countries have successfully engaged in “catch-up” industrialization by running persistent trade surplus. But this does not have a lot of applicability to the American situation. It’s also not the only way to do it. Poland mostly runs deficits financed by inbound investment, and they’ve done great.
Tariffs could increase the domestic savings rate in a roundabout way because they both generate federal revenue (which ceteris paribus reduces federal borrowing) and raise consumer prices. You could accomplish the same thing, with dramatically less in the way of economic distortions and a less regressive distributional impact, by imposing a small value-added tax. Reducing the budget deficit also only works if you actually reduce the budget deficit. What Trump is doing with his tariff revenue is very slightly offsetting the cost of gigantic regressive tax cuts.
There is a sloppy syllogism traditionally located on the progressive side of the aisle that goes something like “unions don’t like NAFTA —> unions represent the working class —> free trade is bad for the working class.” In reality, very few Americans are represented by labor unions and manufacturing workers are a small minority of union members. If you just think about tariffs on the merits, it’s obvious that lower income people spend a larger share of their income on goods (groceries, clothing, furniture, cars) than rich people (who also spend on maids, fine dining, expensive vacations). You can say all you want that free trade has become a symbol of an inegalitarian economic system, but it isn’t actually true that it is inegalitarian.
I really have no idea where we’re going from here. My prejudice is that Trump’s tolerance for market pain is low and that he’ll be willing to strike relatively superficial “deals” and roll these tariffs back. But I wouldn’t be shocked if he sticks with them.
A distinguishing characteristic of the policy course Trump has set us on is that people in his orbit keep offering justifications for it that are not only distinct but mutually contradictory, and then getting peeved if critics don’t accept their account of the real strategy.
The problem is that while all of these things could maybe justify a kinda, sorta vaguely Trump-like policy, none of them actually fit the policy. If we’re trying to counter China, why are we putting tariffs on Korea and Japan? If we’re trying to address systemic global trade imbalances, why aren’t we rewarding Germany for having just done what we theoretically want? If we’re trying to bargain for mutual reduction of trade barriers, why aren’t we negotiating free trade agreements? The whole idea of imposing tariffs based on a formula derived from bilateral trade imbalances only makes sense if the policy is, in fact, aimed at bilateral trade imbalances. This does not make sense, but it’s the goal that Trump is focused on.
The most “sophisticated” of the Trump-adjacent theories is Stephen Miran’s notion that he is attempting to craft a “Mar-a-Lago accord” that would save American exporters from the “exorbitant burden” imposed by the US dollar serving as the world’s reserve currency. I think there are a lot of questionable assumptions baked into this, but my biggest concern is that, if successful, this endeavor would make everyone’s purchasing power lower. Most of the discussion seems to me to be efforts to pull the wool over people’s eyes about this.
Similarly, while I am glad that even globalization-hostile leftists like Bernie Sanders are against what Trump is doing, when Sanders talks about the need for targeted tariffs aimed at “stopping corporations from outsourcing American jobs and factories abroad,” he is still talking about ideas that would make most Americans worse off.
The motive that makes the most sense to me is that it’s bad for American national security if China utterly dominates global manufacturing.
That said, when you hear that China has 2-3x American manufacturing output, does that sound to you like evidence of dramatic failure of American trade policy or a fairly natural consequence of the fact that they have four times our population?
We need to be trading with friendly countries more, not less.
We need to be working to increase the rate of American population growth, especially with smart reforms to skilled immigration.
Instead of letting weird gender anxieties wreck our national economic policy, the federal government should be taking the lead in encouraging (or forcing) jurisdictions to allow denser construction on the most valuable land.
It has not gotten nearly as much attention as the Liberation Day tariffs, but the Trump administration appears to be poised to impose a form of globalized Jones Act that I guess they are hoping will spur the creation of a US shipbuilding industry, but seems to me to have been slapped together in a totally thoughtless way that is going to cause even worse economic problems.
I’m not sure whether I should be worried about Trump making terrible economic policy decisions, or heartened that doing so makes it less likely that his efforts to undermine democracy and the rule of law will succeed.
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This feels like an LSAT find the flawed reasoning question “unions don’t like NAFTA —> unions represent the working class —> free trade is bad for the working class,”
Correct answer is C: Unions don't always represent the working clas!
This is kind of a gimme question tbh.
I think what I find concerning is that the tariff plan is so breathtakingly insane, we're leaving the land of 'normal if corrupt politics' and entering..... something else. I can at least understand suboptimal, protectionist laws that benefit noisy domestic groups (the Jones Act, tariffs on pickup trucks, etc.) I can at least understand blatant corruption (Trump memecoins. Or, going back further in time, George H.W. Bush pardoning his co-conspirators in Iran Contra).
When we start to do random policies that hurt the whole economy and have very very few domestic backers, however- this seems like the direct road to something more like Maoism. We're leaving a 'personality cult' and entering something that I would just call a cult. It's been a long time since I took my sociology of fascism class, but what I remember is that the difference between 'regular' conservatism and fascism is that the former wants to conserve the existing power arrangements- and the latter wants to dramatically re-order society. Again, Maoism. Cheerful Tuesday morning posting!