Creative Use of Tariffs and Other Tools of State

Economists and other practitioners of the "dismal science" often point out how counter-productive tariffs generally are. In many situations, they are correct, especially where trade is free and open.

They aren't always right, though.

Foreign markets for US goods have long had tariffs against our products, while we generally have allowed their products to freely compete in our own markets. They have generally been just fine with this situation, usually only complaining that we aren't paying enough.

Just to be clear, a tariff is a form of tax levied against certain imports, making those imports more expensive to purchase, much like a sales tax. In the past, countries have used tariffs to generate income for the government, to protect industries within a country, and to control the flow of wealth into and out of a country.

Our founders envisioned a national government that would be supported by tariffs, and until the early 1900s that was largely how our country worked. There was a brief period of income tax during the Civil War, but largely, the government was financed by tariffs until Democrat President Woodrow Wilson instituted the income tax in 1913 to support a "professional" government.

Tariffs have both positive and negative effects, sometimes both at the same time. While a tariff can protect a domestic industry by reducing foreign competition, it can also make a domestic industry lazy and less competitive. A foreign tariff can make it harder to sell products outside a country and reduces income, it also makes foreign products potentially less expensive. A foreign tariff makes it advantageous for a company to consider manufacturing or production in that country - exporting both jobs and wealth. While the foreign products may be less expensive, there is also less wealth available to purchase them.

For example, if Europe or Asia establishes a tariff on US automobiles, it makes US produced automobiles more expensive in those countries and reduces demand for our cars. Because demand is reduced, US car companies will not produce as many cars, and the need for auto production workers will be reduced. The reduction in auto workers reduces the amount of money in the economy, and increases the cost of domestic production.

If foreign cars can be imported and sold below the cost of equivalent American made vehicles, domestic purchasers will be encouraged to purchase the foreign cars instead of the domestic ones. This further compounds the domestic problem by sending money outside the country, making less available to purchase domestic goods.

For many decades, the US has had very low, or even no tariffs on most imported goods. The rest of the world, though, has had lots of tariffs, including some very high tariffs against our goods. This imbalance has worked to our detriment.

Companies have started manufacturing and production facilities in other countries, resulting in a large export of jobs. We have become dependent on foreign sources of many critical supplies, including pharmaceuticals, semiconductors, various minerals such as rare earths, and even many food products. As we are discovering, this is not a good situation for our country.

Although it has been recognized as a problem for a long time, and we have tried to negotiate a more equitable balance, the foreign powers have had little interest in changing something that works in their favor. We are buying lots of their products, and their own industries are prospering while ours languish. Why should they want to change that?

We have even developed large enterprises that profit off importing and selling lower cost goods to Americans. These domestic firms also oppose tariff reductions since it would adversely affect their business.

Now we come to Trump and a new use of tariffs. By use of tariffs and threats of tariffs as an instrument of policy, Trump is "encouraging" other nations to negotiate their tariff positions. By simply taking a tit for tat approach where the US would impose the same level of tariffs against a country as they impose against us, he has finally created an incentive for those nations to reduce or eliminate their own tariffs. For nations that have had abusive levels of tariffs, Trump has proposed similar high tariffs against their products. By using tariffs as an instrument of policy, he has been able to break the decades long deadlock of adverse foreign tariffs against American goods.

Already this approach has borne fruit in encouraging both foreign investment in American production, as well as expansion of domestic production. This means more American jobs, more wealth retained, and even a reduction in our trade imbalances, at the small expense of a temporary increase in the price of some foreign made goods.

By forcing a level playing field in international commerce, American production becomes competitive again on the world stage. This use of tariffs as a foreign policy tool, is significantly different from the use of tariffs as the industry protection method so disdained by conventional economists.

There is another aspect of tariffs as policy that has been exploited by the Left to support a misguided scheme of wealth redistribution. For a long time, there has been a perception on the Left that America has been unfairly hoarding wealth and not sharing our bounty with the rest of the world. They don't acknowledge the creation of new wealth through the capitalist transformation of labor, raw materials, and intelligent production.

Instead, these people have operated from the false position that total wealth is fixed and if one party has more, then other parties must have less. Under this assumption, the wealth of America has been unjustly gained at the expense of others.

Here, we have had a group of folks who believe that we have been stealing from the poor countries of the world by buying raw materials from them and then creating great wealth from those materials. They feel that we have been exploiting these poor folk and should share the wealth with them. There is even a discussion of this very topic in a popular work. Matthew 20:1-16

If you have a garage sale and sell stuff you aren't using, are you being exploited? If a country sells stuff it isn't using and can't use, is it being exploited? If someone who knows how to use something that you have, you sell it to them, and they proceed to make lots of money from it, have you been cheated? Exploited? Ripped-off? Is there an Injustice? Please explain. Use pictures.

Consequently, they have supported tariffs against American goods as a way of returning stolen wealth to deserving nations. This, too, is a form of trade policy and use of tariffs as policy instruments. Unfortunately, it is based on false assumptions resulting from ignorance of basic economics - especially of Capitalism and its ability to create new wealth.

Fortunately, we have a President who knows more of practical economics than most so-called "experts", and especially people of the Left. Opponents of Trump's tariff policies have been exploiting the general ignorance of economics and of tariffs that is a result of our damaged education system to generate opposition and confusion.

Once the dust settles, and America is once again in a competitive position in world trade, everyone will be able to see the benefits of this creative use of tariff tools, not just for America, but also for the rest of the world.

David Robb is a practicing scientist and CTO of a small firm developing new security technologies for detection of drugs and other contraband.  Dave has published extensively in TheBlueStateConservative, and occasionally in American Thinker.