Most people with a basic understanding of economics recognize that tariffs raise the price of goods and inhibit international commerce. If the government taxes goods, at least some of the cost is passed onto consumers. Furthermore, exorbitant tariffs can raise the price of goods to a height that makes it disadvantageous to produce them in another country.
For centuries, astute political and economic observers have demonstrated the economic downsides of tariffs. The famous 18th century jurist, Sir William Blackstone, described the effects of import duties on the English consumers: “These customs are…a tax immediately paid by the merchant, although ultimately by the consumer.” In order to make up for tariffs, importers raise their prices. Consequently, Blackstone argued that “these imposts, if too heavy, are a check and cramp upon trade; and especially when the value of the commodity bears little or no proportion to the quantity of the duty imposed.” Thus, tariffs tend to be economically inefficient. They inhibit trade and raise prices. This does not, however, mean that tariffs are entirely negative. In Blackstone’s day, for example, they provided necessary revenue to the crown.
In our neo-liberal era, however, elite economists and politicians all but abandoned the use of tariffs. These taxes were viewed as antiquated inhibitors to the workings of the global market. In the age of free-trade conservatives welcomed the resultant increase in commerce and liberals embraced the new era of globalization. Thus, President Trump’s support for tariffs was met with skepticism by individuals of all political backgrounds. When he announced his plans, mainstream media outlets eagerly pointed out that such a move would cause higher prices. Conservatives, on the other hand, assured their liberal counterparts that the president would not actually implement tariffs across the board.
Indeed, if President Trump intended to use tariffs for purely economic purposes, his plans would be ludicrous. Massive tariff increases inevitably dislocate international trade and raise the price of goods. In purely economic terms, tariffs cause harm.
Unfortunately, however, we do not live in a purely economic world. This was amply demonstrated by the outbreak of World War I. Prior to the war, Nobel Peace Prize recipient Norman Angell published a book called The Great Illusion arguing that a major war was economically irrational. In an interconnected world, war cost too much for both the victors and the vanquished. Nonetheless, these considerations did not prevent the outbreak of a global conflict. Countries are motivated by more than purely economic interests. In our world, the Ayatollah is motivated by Islamism, Putin is motivated by Soviet revanchism, and Xi is motivated by Chinese nationalism. Their views are not purely economic.
The United States also has interests related to national security that are not immediately economic. Halting the flow of illegal immigrants, for example, is an essential task of the incoming president. Thus, he threatened to impose tariffs on Mexico unless they agree to stem the flow of immigrants and drugs. Ideally, President Trump’s threats will remain hypothetical. However, Mexico’s refusal to cooperate would justify such tariffs.
China’s global ambitions also threaten U.S. interests. While stealing foreign technology, China has used its status as a member of the World Trade Organization to spur massive economic growth. Furthermore, the statist economy of China inhibits the ability of American companies to compete with certain industries. For example, experts say the Chinese government plays an important role in EV development by “propping up both the supply of EVs and the demand for them.” While the U.S. as a whole may have a more effective capitalist economy, it is difficult for specific industries to compete with Chinese companies that receive substantial government assistance. Tariffs can be used to offset this imbalance.
China’s aggressive and totalitarian ambitions also threaten U.S. interests. For many years, the prevailing wisdom held that China would democratize as it became globally interconnected. Such sentiments now appear to be as naive as those of Norman Angell. One is reminded of a Vladimir Lenin’s observation that “[t]hey [capitalists] will furnish credits which will serve us for the support of the Communist Party in their countries and, by supplying us materials and technical equipment which we lack, will restore our military industry necessary for our future attacks against our suppliers. To put it in other words, they will work on the preparation of their own suicide.” Clearly, the United States’ interests include the curtailment of China. Tariffs can serve as an important impediment to the economic rise of hostile powers.
President Trump, like a typical dealmaker, knows how to use leverage. From his public statements, it is clear that he views tariffs as a means to an end. By reviving discussions about tariffs, he reintroduced an important strategic tool.
