Trump's Tariff Cure-All is Worse than Advertised, Even Though Tariffs Are Sometimes OK
Before turning to the issue teased in the title of this column -- Donald Trump's fascination with ruinous tariffs -- I should come clean and admit that doing so is both awkward and a guilty pleasure. I will explain the latter in the course of the discussion below, while the sense of awkwardness rather obviously springs from the simple fact that this election is not about tariffs or policy at all.
It feels strange -- and borderline irresponsible -- to use my little corner of the internet to talk about anything other than the fascist threat directly facing the country and the world, especially now that the last shreds of deniability regarding Trump's Nazi sympathies have been tossed away. That Trump is the one who finished the job on himself is in some sense surprising, but also not. In any case, talking about anything other than the imminent death of democracy is, again, awkward.
In a Dorf on Law column last week, I addressed one of the important outstanding questions about how the country might avoid a fascist takeover. I argued that the second half of "Harris must win, and hopefully by large margins" is a good -- even essential -- thing for her campaign to say, but I also pointed out that there is no imaginable world in which the size of her victory in any state would prevent the worst response from Trump.
On the other hand, I noted that winning as many states as possible (as opposed to winning any particular state by a large margin) was essential, adding this: "Next week, I will write a column going into depth on all of that, but the simple point is that Trump's post-election strategy will not be a matter of winning some number of votes but will instead ride on state-by-state challenges that are each a binary matter." I published that column yesterday on Verdict: "Harris Wins, 268-251!! (Or, Don’t Make the 'House-Decides Error.'"
There, I expanded on the latest Buchanan-Dorf-Tribe op-ed (nicely summarized by Professor Dorf in his column here two days ago), which explains that although the Twelfth Amendment most definitely does not "throw the election to the House" (under an especially dreadful, anti-democratic voting rule), Trump will certainly try to block the appointment of electors from states that Harris wins. Even if he cannot get his own electors appointed, he can turn an Electoral College loss into a win if he can knock out enough Harris slates. Hence, the need for Harris to win as many states as possible, because that would make the Trumpists' job much more difficult. Again, they will not care how large or small the margin is in any given state, but having to do their dirty deeds in five states would be much less likely to succeed than in one.
Having published all of that just this week, and with a plan to write another column exploring further how the fight over the Twelfth Amendment might turn into a constitutional crisis, I gave myself permission to talk about something that would be disastrous but not cataclysmic in a new Trump presidency: turning his tariff obsession into policy.
Above, I wrote that "this election is not about tariffs or policy at all." Yes, Republicans claim that they want Trump to stick to "talking about policy," but as I explained in multiple columns last month (links collected in this summary column on October 8), they do not in fact want him to do any such thing. They want Trump to rant about immigration and inflation, because those are "policy issues," but they do not want him to talk about his (or their) actual policy ideas at all. On the contrary, talking about his policies in anything other than Trump's patented "Only I can fix it" vacuity would be very bad for Trump and anyone who wants him to "win on policy."
Shortly after the non-debate between Harris and Trump last month, I wrote a Dorf on Law column noting in part that some mainstream press types had picked up on Trump's line about how the Biden Administration had not repealed the relatively small tariffs that Trump had imposed while he occupied the Oval Office. Those bothsidesist journalists obviously believed that this was a big gotcha against Harris, and I responded that "it is nonsensical to compare across-the-board tariffs to individual tariffs. 'She thinks that we shouldn't throw small children in the deep end of the pool, but she hasn't stopped that one kid from splashing water in other kids' faces. She's obviously lying.'"
As far as it went, I believe that that analogy made a decent point. There is, however, much more to be said, in particular asking whether a plausible reading of what I wrote -- tariffs are always bad, but the ones that Biden left in place are not too damaging -- is true. It is not, as I will demonstrate shortly. I also argued that getting rid of Trump's tariffs must surely have been low on the priority list of an administration that was dealing with all of the other messes that Trump had left behind. After looking into it further, it turned out that the Biden team had taken the time to confront the question of repeal and decided against doing so. That decision surely deserves some further consideration here.
As it happens, I am a bit of a tariff geek. When I was in college, my economics courses included the conventional wisdom that "free trade" is good as a categorical matter, which meant that any and every trade restriction was a mortal sin against the gods of the Invisible Hand and the law of comparative advantage. During the summer after my Junior year, however, I was lucky enough to land a job as a researcher at a small consulting firm of economists in Washington, D.C. Those consultants provided expert testimony for BigLaw firms that represented US manufacturers in administrative proceedings seeking "protectionist" measures like tariffs and quotas. I spent a big chunk of that summer studying "certain steel wire nails from Korea" and the case for tariff barriers, then turned my attention to "certain outboard motors from Japan." Nerd heaven.
The economists who ran the firm sat me down on my first day and said that they were sure that I had been told that protectionism is bad. They did not even need me to confirm as much, because the conventional wisdom in economics departments nationwide at that point was almost without dissent. My new supervisors then explained to me what later became known as "industrial policy" and other real-world exceptions to the textbook case for purely free trade. I was so intrigued that I ended up writing my senior paper in the Economics Department about those arguments. (To Vassar's credit, the department did not fault me for deviating from the accepted orthodoxy.)
If anyone would be open to a politician arguing against the still-existing notion that trade must be unfettered, then, it would be me. From the "infant industries" argument (the idea that some domestic industries might be nurtured to the point where they could compete against foreign competitors without ongoing protection) to limited examples of national security-sensitive trade policies and beyond, I have long known that "tariffs are bad" was at best a very sloppy overstatement.
This, in fact, is very similar to what became my main focus as an economist: federal deficits and debt. Just as I have argued that "there are good deficits and bad deficits," I also argue that there are good and bad trade restrictions. Trump's big 2017 tax cuts created bad deficits, because they were pure giveaways to the wealthy that did not create the growth that Trump and the Republicans promised. Borrowing money to finance early childhood education is an example of a good deficit.
In any event, one of the reasons that Biden's advisors came down against repealing Trump's tariffs was not that those tariffs were good but that reversing them would itself be damaging. Imposing the tariffs in the first place was a bad idea on Trump's part, and it was even worse because un-ringing that bell would be too expensive and disruptive.
It turns out that the economic and political consensus in a post-NAFTA world has come around to embracing -- or, at the very least, not categorically denouncing -- various "impure" trade policies that would have been anathema to economists in the 1980's and 1990's. Again, I was an outlier when Bill Clinton was bloodying fellow Democrats while ramming NAFTA through Congress. At the time, an economist friend told me that he and a group of colleagues were going to have a "watch party" to cheer on the pro-NAFTA vote when the bill came up for passage, and I blanched. The predictable and predicted disaster followed, but it turned out to be so bad that I have never felt inclined to gloat.
But Trump, of course, is not talking about using tariffs as part of a carefully crafted economic policy plan (or even "concepts of a plan"), choosing the specific industries to help in quantitatively sensible ways and with expiration dates and phaseouts. As Professor Dorf memorably put it recently: "Trump's Tariffs Are Magic!" Trump has been talking about going back to the nineteenth century and having federal revenues come not from the now-usual mix of income (personal and corporate) taxes, payroll taxes, and a melange of smaller levies but rather almost entirely from tariff revenues. Professor Dorf notes that Trump shows no awareness that there is at best a tradeoff between using a tariff to collect revenue and using it to push manufacturing onshore, which is as basic as it gets.
Indeed, Trump continues to insist that his tariffs will be paid by "foreigners," especially "Dzhina!!" Some anti-Trump commentators make the mistake of saying that a 60 percent tariff on a $1000 good will definitely result in the price rising to $1600, which misses the possibility that not all of a tariff will be passed through to consumers (just as sales taxes are not always fully paid by consumers). Even so, there is plenty of evidence -- so much evidence, in fact, that this is another rare area in which economists are in near-complete agreement -- that large, across-the-board tariffs would almost entirely show up in higher prices. That need not be true as a matter of theory, but the empirical evidence demonstrating that result is substantial.
When challenged on this, Trump does what he always does: resort to insults. In an appearance last moth at the "Economics Club of Chicago" (which is not a group of economists but, like all such big-city "economics clubs," a gathering of business types patting each other on the back about how great capitalism is and arguing for lower taxes), Trump said this to the interviewer: "It must be hard for you to spend 25 years talking about tariffs as being
negative and then have somebody explain to you that you’re totally
wrong." That showed him!
Again, some tariffs in some situations are positive, but blunt-force steroidal tariffs on everything are terrible. And they certainly will increase consumer prices. A news report today began with this:
Across the United States, companies that rely on foreign suppliers are preparing to raise prices in response to the massive import tariffs that former president Donald Trump promises if he wins the election Tuesday.
Producers of a range of items, including clothing, footwear, baby products, auto parts and hardware, say they will pass along the cost of the tariffs to their American customers.
To be clear, whereas business owners (who tend to be Republicans) would be tempted to push the boundaries of the truth or worse if asked to assess a liberal policy idea like an increase in the minimum wage, the incentives here are all in the opposite direction. Trump's clientele, if you will, is openly saying what everyone knows: They will do everything they can to pass along the costs of tariffs to American consumers.
Again, however, Trump claims that foreign producers will bear the cost of the tariffs, and he says that they will respond by moving their manufacturing into the US, where they will not be subject to the tariffs. But if that were to work (which of course is wishful thinking), then we would be collecting zero dollars from tariffs. If imports are zero, then tariff rates of ten, twenty, and sixty percent will still collect no revenue. Note also that I have not even mentioned the retaliatory trade war that Trump would set off.
In the end, this is all an insane mess of unsupported claims and uninformed suppositions. When Trump talks about tariffs and foreign trade, at least he is not (usually) wrapping those comments in racist insults and unhinged digressions about flush toilets or the genitalia of dead golfers. As such, Republicans would surely prefer that he say utterly silly things about economic policy, given the alternatives.
As policy, however, this is simply bad all the way down. Again, if ever there were an economist who is open to hearing deviations from pro-trade orthodoxy, I am that guy. But this is nuts, and it is not anywhere near a close call.
As I noted at the top of this column, if Trump becomes President again -- note that I did not say "wins the election," only "becomes President" -- there will be much more important things to worry about. We all remember how bad the economic policies were in Nazi Germany, fascist Italy, and Imperial Japan, right? Of course not. And we will not be talking about any of that in a post-democratic United States, either.