Time for a Teachable Moment on Tariffs

It’s difficult to debate policy in the midst of a political race given that partisans on both sides have already made up their minds and aren’t seriously calling balls and strikes on each candidate’s specific proposals. Yet American voters are in a good position to debate one particularly important policy issue — namely, the matter of tariffs. Both candidates are dead wrong on the topic, so a discussion about it won’t advance either side’s election prospects. Maybe we can take a look without prompting the usual knee-jerk partisan reactions.

Tariffs are taxes countries impose on imported goods. They impose them to protect domestic industries from competition, raise revenues, or punish other countries for bad behavior. During Tuesday’s presidential debate, Donald Trump vowed to boost tariffs — perhaps to as much as 20 percent. He expanded tariffs as president, but Joe Biden kept most of them in place and increased other ones. Kamala Harris criticized Trump for them, but this is largely a bipartisan fiasco.

Back when Republicans more consistently championed free markets rather than nebulous economic “populism,” they understood that, despite claims that tariffs are imposed only on foreigners, they are just a fancy term for a tax that is mostly paid by domestic consumers. A report from the Tax Foundation’s Erica York accurately concludes that “tariffs benefit some but hurt far more others” and that “tariff-protected industries also rarely (if ever) become stronger.”

The Trump administration championed its steel tariffs that were designed to protect union steelworker jobs, but those tariffs also increased costs for steel-using industries (such as automobiles). The Council on Foreign Relations (CFR) points to a University of California–Davis study finding that Trump’s “tariffs on steel and aluminum had likely resulted in seventy-five thousand fewer manufacturing jobs in steel-using industries while creating just one thousand jobs in steel production.” That’s a foolish tradeoff.

York’s second conclusion is important, too. By protecting companies from vibrant competition, tariffs can cause them to become complacent, subservient to union demands, and mired in inefficiencies. One oft-cited example is Ronald Reagan’s tariffs (even the Gipper made mistakes) to protect Harley-Davidson from Japanese competitors. Some blame that decision for Harley’s failure to adjust to changing motorcycle tastes and for a subsequent sales slide.

Tariffs also exacerbate international tensions, sometimes resulting in actual wars or hostilities. They also invite retaliatory tariffs that harm U.S. companies that are dependent on exports. They overall reduce economic activity and gross domestic product and can actually encourage illegal immigration. If, say, the United States imposes tariffs on Mexican goods, that reduces Mexican manufacturing and leads to unemployment and international migration.

Tariffs also drive up federal spending. This is from CFR again: “The most common way for countries to fight back against tariffs — aside from levying retaliatory tariffs — is to subsidize the domestic industries that have been hit. The Trump administration countered tariffs on agricultural products by providing farmers with tens of billions of dollars in aid to make up for lost exports.” Neither party much cares about spending these days, but federal debt remains a looming problem.

Still, the main rub against tariffs again is that they are taxes, which drive inflation and harm consumers. Efforts to hide that fact might actually get a little harder under a recent bipartisan Senate bill called the Fighting for America Act. The legislation is union-backed nonsense that would, per Politico, “reform the de minimis trade provision that has fueled a flood of low-value imports from Chinese fast-fashion giants and other suppliers.” It eliminates a so-called loophole that allows low-cost shipments (below $800) to enter our country without paying duties.

The House version of the bill imposes a $2 entry fee on each shipped item, which will be included as a line item on myriad small shipments that customers receive from overseas. Usually, the costs of tariffs are assessed upstream on commercial shipments and therefore hidden from consumers, but if this bill becomes law, then at least people will see the cost on their bill. It will offer definitive proof that tariffs are not paid by shadowy foreigners, but by American consumers.

Perhaps Americans shouldn’t need this simple lesson, but given the current state of the political parties and the presidential race, it’s unlikely they’ll hear it during a stump speech or debate.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

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