Tariffs In The Twenty-First Century

     Of all the policies being implemented by the Trump Administration at this time, this matter of tariffs is the murkiest. Smart people can be found on both sides – excuse me: did I really just write that? – on every side of the subject. It has more than two sides.

     I’m going try to aggregate the most important aspects of the tariff debate in this piece. I don’t expect that this will be a definitive treatment; that’s not my objective. I merely want to illuminate how many divergent takes on tariff policy there are today.

     The early United States imposed tariffs on incoming manufactured goods to protect America’s “infant industries.” At least, that what schoolchildren of my generation were taught. But in the Fifties and Sixties, minor children weren’t expected to grasp the complex political dynamics of national protectionist policy.

     Even during the Washington Administration, there were political factors involved in federal tariff policy. Among other things, the tariffs imposed on imports varied according to the owner and flag flown by the importing vessel:

     The [Tariff Act of 1789] levied a 50¢ per ton duty on goods imported by foreign ships, a 30¢ per ton duty on American made ships owned by foreign entities, and a 6¢ per ton duty on American-owned vessels.
     In the aftermath of the American Revolution, the weak Congress of the Confederation had been unable to impose a tariff or reach reciprocal trade agreements with most European powers, creating a situation in which the country was unable to prevent a flood of European goods which were damaging domestic manufacturers even while Britain and other countries placed high duties on U.S. goods.

     The overt purpose of the tariff was twofold: to raise revenue for the federal government, and to encourage the domestic production of goods that would replace those manufactured imports. The revenue was largely sufficient to fund the federal government at that time, though the desire to eliminate the Revolutionary War debts would soon bring about internal taxes, including the notorious “whiskey tax” that evoked the 1794 Whiskey Rebellion. The impetus to the expansion of American-owned and American-flagged shipping is difficult to assess at this remove.

     As is well known today, the 1789 tariffs exacerbated tensions between the agrarian southern states and the manufacturing-oriented northern ones. Those tensions grew over the decades. They had a significant part to play in the eruption of the Civil War, after the election of high-protective-tariff advocate Abraham Lincoln.

     Import tariffs today could help to fund Washington, but the “infant industries” argument has no force. The industries which the Trump Administration seeks to assist are mature ones that have lost domestic volume and jobs due to “offshoring” and the lower cost of operation in foreign lands, most notably the Far East. But another consideration is of equal importance: the tariff policies of other advanced countries, especially those of Europe. Those nations impose import duties considerably higher than most Americans are aware, especially as they apply to the “pet” industries of Germany and France.

     Thus, we have already seen several purposes that tariffs can serve:

• Revenue generation;
• Assistance to domestic production and employment;
• A balancing provision aimed at nations that impose tariffs on U.S. exports.

     President Trump has added a fourth objective: a bargaining chip with which to extract policy changes from other nations. America’s border-control problems with Canada and Mexico factor heavily into his tariff intentions. Those nations are largely indifferent to the flow of people and contraband from their lands into the U.S. President Trump hopes to use tariffs to induce them to take corrective action.

     As regards Europe, the problem is of another kind: the effective subsidization of European governments through the NATO alliance. The U.S. spends many billions of dollars per year on the military defense of Europe. Previous administrations, including the first Trump Administration, have had little success at adjusting this. Raising American import duties to levels comparable with those of Europe’s NATO members could both help to compensate for “military welfarism” and to induce those nations to increase their own commitments to European defense.

     Second-order effects should be kept in view as well. At this time, federal defense spending is edging near to $1 trillion per year. Increased European commitment to defense could help to reduce American defense spending. Since a large fraction of federal defense spending is through defense contracting, the political influence of American defense contractors would be lessened as well. That would mitigate the tensions that arise from the concentration of major defense companies in particular states.

     The use of tariffs to favor or disfavor important political interests must not be neglected. The pernicious effects of politically targeted tariffs were a major motivator behind the Commerce Clause of the Constitution, which prevented states from imposing their own tariffs against goods made in other states. But federal tariffs can be used to similar effect. A high tariff on imported furniture, for example, would greatly benefit North Carolina at the expense of other states. A low or zero tariff on imported beef would be frowned upon by the ranching states. Congressional tussles over such things have occasioned much ill feeling, to say nothing of the accusations of electoral manipulation that’s possible thereby.

     Tariff policy will never be a simple matter. There are significant hazards in the crafting of even a simple tariff bill. Those were already evident at the beginning of our nation. Because of the regional and political tensions that warp legislation of every sort, a tariff act can trigger unintended consequences that would overwhelm its good effects even with the best will in the world among its authors.

     But for many, the tariff argument is about either “free trade” or “fair trade.” “Fair trade” has so many divergent interpretations that the phrase should be dismissed by anyone interested in rational discussion. As for “free trade,” which for so long has been the mantra of anti-tariff advocates, the more I reflect upon the matter, the more I’m persuaded of a rather depressing conclusion:

     Too many differences exist among nations, governments, and peoples, every one of which will factor into national policies and the flow of goods, to make the assessment of a state of affairs as “free trade” agreeable to all.

     Additional articles on the subject:

• Tariffs and Talk: What Happens After?
• How Trump’s Tariffs Could Create Jobs.
• Thomas Sowell Fears A Trade War.
• A History of U.S. Protectionism.
• Are Trillions Really At Stake?

     Remember what Buddha said: Always do your own thinking!