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Trump’s proposed tariffs would be a disaster

By Kent James 6 min read

When Donald Trump was president, he flipped the Republican Party’s stance on free trade.

Historically, Republicans had been the party of manufacturers and favored tariffs to protect their industries from foreign competition. After World War II, when the manufacturing bases of our industrial rivals had been devastated, U.S. manufacturers realized there was a huge opportunity to expand into new markets and the Republicans began to favor free trade. This was reinforced by the deregulation goals of the administration of President Ronald Reagan and the rise of neoliberalism. While President Bill Clinton signed the North American Free Trade Agreement (NAFTA) in 1994, the pact was put in motion by Clinton’s predecessor, President George H.W. Bush, and more Republicans than Democrats supported it in Congress.

From the end of World War II to the 1990s, most trade was with other wealthy countries, with wages and environmental policies like ours, so the trade was not too disruptive, though there were disruptions in the steel and auto industries. But in the 1990s, U.S. imports from low-wage countries, such as Mexico and China, accelerated the disruption, exacerbating the decline of American manufacturing.

Many on the left oppose free trade because it’s a key part of globalization that helps large corporations profit while many workers get left behind. Although Trump ran as a Republican, his promises to use tariffs to protect workers was attractive to a lot of people who traditionally voted Democratic. While Trump’s tax policies benefit the wealthy and large corporations, his tariffs allowed him to claim he is a populist.

Economist and philosopher Adam Smith argued for free trade in “The Wealth of Nations” in 1776, a book that influenced many of the nation’s founders. Smith argued that free trade allowed people to do what they were good at and exchange the products of their labor with others who had produced goods they wanted. In theory, a trade should benefit both parties or the trade won’t happen. In international trade, critics like Trump claim trade is good for one country or the other, but in reality, most trades benefit one group within a nation at the expense of another in each country. When factories move from the U.S. to low-wage countries, U.S. consumers benefit from lower prices while U.S. producers go out of business and workers lose jobs.

In the case of Trump’s tariffs, he claimed to save jobs in steel and aluminum production by putting tariffs on those products. While some jobs in those industries were saved, the higher-priced metals cost jobs in industries that use those materials, such as automobiles. One reason conservatives don’t like tariffs is they represent government interference in the economy, which can lead to inefficiencies and opportunities for corruption.

In response to Trump’s tariffs, China imposed retaliatory tariffs on U.S. agricultural products, and U.S. exports to China plummeted. Trump had to use the Commodity Credit Corporation to keep farmers from going bankrupt. From 2018 to 2020, the U.S. collected $66 billion in tariffs on Chinese goods and spent $61 billion on agricultural subsidies to replace the farm income lost due to Chinese tariffs.

Ironically, after rightfully criticizing the Trump administration’s politically driven tariffs, the Biden administration kept them for the same reason Trump imposed them – they appeal to constituencies in key swing states such as Michigan and Pennsylvania. Biden enacted additional tariffs on some Chinese exports, primarily in the green economy, such as electric cars. They justified these tariffs by arguing American companies in these sectors are still new and can’t compete with Chinese manufacturers. This argument goes back to Alexander Hamilton’s “1791 Report on the Subject of Manufactures,” which proposed tariffs on British manufactured goods to protect the nascent American manufacturing sector. These tariffs, along with the trade restrictions created by the War of 1812, protected American industry long enough for it to compete on the world market.

Tariffs raise revenue for the government and they can change economic behavior. In the early years of the American republic, tariffs provided over 90% of funds for the government. This began to change with the increased spending brought about by the Civil War, which was funded by a new income tax, and today tariff revenue provides a little more than 2% of federal revenue.

Free trade is an important part of capitalism and drives economic growth. The problem is when U.S. companies are competing against foreign competitors who benefit from lax labor laws or environmental protections or are simply subsidized by their governments. When countries allow their labor to be exploited or despoil their environment, it reduces costs in ways we don’t want U.S. companies to emulate. Adding a tariff on the products from these countries helps level the playing field. NAFTA had some of these protections, though they proved to be largely ineffective. The Trump administration improved NAFTA in this area.

Trump sees tariffs as the answer to many of our problems, from job losses to child care. He has proposed a 60% tariff on Chinese products and a 10% tariff on everyone else. This is a massive change from the status quo. Trump seems to think tariffs are free money, where other countries pay for the honor of selling us things. Economists have found that most of the tariffs are a tax paid by the consumer in the form of higher prices, and Trump’s tariffs would cost the average middle-class family about $1,700 per year. Tariffs are also inflationary, because sellers charge more to reflect the cost of the tariff, and domestic producers protected by the tariff can raise their prices and still be below their tariff-paying foreign competitors. Like a sales tax, tariffs are regressive, because the poor spend a higher percentage of their income than the rich.

Tariffs can be appropriate to level the playing field for domestic suppliers, but they should be used sparingly so that they don’t create inefficiencies and opportunities for corruption. Trump’s proposed massive tariff increase would be a disaster.

Kent James is a member of East Washington’s borough council.

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