The Trump Tariffs

Republican Senators greet Donald Trump in DC (WSJ)

Donald Trump's tariff proposals--and their acceptance by the Republican Party--show how far Republicans have strayed from their free-trade principles. [bold added]

Trump floated the idea of an all-tariff federal revenue system, large enough to replace the income tax, during a morning session with the House GOP, according to a GOP lawmaker in attendance.

The presumptive GOP presidential nominee has consistently supported higher tariffs as a way to protect domestic industries. He has long backed income-tax cuts, including extensions of the ones he signed in 2017. An all-tariff approach would combine the two stances and take them to the extreme, reversing more than 100 years of economic policy that encourages free trade and requires higher-income households to pay higher tax rates than the middle class. Such a return to 19th-century fiscal policy could amount to a tax cut for high-income people and, effectively, a tax increase on consumers, who would pay tariffs passed along to them in prices.

Economic theory teaches that barriers to trade, such as tariffs, make one's own population worse off because they have to pay more for imported goods. Tariffs are typically justified to protect the home industries that cannot compete on price with imports.

One problem with tariffs is that other countries retaliate by imposing tariffs of their own. For example, a tariff on Chinese electric vehicles (President Biden proposes 100%, while former President Trump wants 200%) will likely result in Chinese tariffs, which they have imposed in the past, on American agricultural products. As retaliatory tariffs escalate, perhaps bringing in other countries, a trade war results, impoverishing everyone.

Another problem with tariffs is that domestic industries become dependent. They exert political pressure to keep tariffs in place instead of raising their own game, making it likely they will never be competitive in world markets.

One of Mr. Trump's strongest arguments for his election is that inflation will return to the much lower level of his first term. Broadly increasing tariffs will raise the general cost of living and torpedo that goal. If he is elected, let's hope that his economic advisers will talk him out of widespread use of tariffs and restrict them to products like EV's that Americans don't seem to care about.