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A Point CounterPoint On Tariffs [1]
['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.']
Date: 2025-02-03
A friend sent me a pro-tariff missive a MAGA friend of his shared. My friend wanted to know what I thought of it. Here is what he sent me.
“In its most basic form a tariff is a tax placed on imported goods. For instance, China sells widgets in the U.S. A 10% tariff on China would mean that for every widget China sells in the U.S., China must pay the U.S. federal government 10%. Currently, foreign trade with the U.S. is extremely imbalanced. For example: the U.S. may charge China a 10% tariff BUT, China charges the U.S. a 50% tariff. This means more Chinese goods get sold in the U.S. than U.S. goods sold in China. These grossly imbalanced tariffs (international tax) have encouraged U.S. manufacturers to move manufacturing OUT of the U.S., eliminating good paying middle class U.S. jobs. By raising tariffs on imported goods, U.S. companies are incentivized to return manufacturing to the U.S. because it will be more profitable to produce in the U.S. than to pay high import tariffs. In the short term U.S. pricing will increase. HOWEVER, within 1 year those prices will decrease as manufacturers return to U.S. production. Not only will prices return to more affordable pricing but, 100’s of millions U.S. middle class jobs will become available hence, raising the standard of living for the American worker. Prior to 1850 over 90% of all federal revenue came from international tariffs AND income tax did not exist and was deemed unconstitutional. In 1913, the U.S. federal government implemented the federal income tax scheme upon all U.S. workers. Today only 2% of all federal revenue comes from tariffs. The remaining federal revenue comes from income taxes, state taxes and borrowed money from the Federal Reserve, which weakens the U.S. dollar. A strong and fair tariff system has the potential to not only reduce federal income taxes but, even eliminate them. Again, providing a higher standard of living for the American worker.”
I responded to my friend pointing out the numerous flaws, and flat out factual misrepresentations, of his friends arguments. What follows is a cleaned up version of that, along with some additional thoughts.
Let’s start with this: “For instance, China sells widgets in the U.S. A 10% tariff on China would mean that for every widget China sells in the U.S., China must pay the U.S. federal government 10%.”
Absolutely false. The American importer would pay the 10%, not China. Think about it. How would you, how could you, make China itself pay? This fundamental error of fact alone is sufficient to trash the rest of the arguments above. It also shows that whoever authored it is absolutely clueless regarding how tariffs work.
Nor is the 50–10 characterization of tariffs accurate. To be sure, China uses a variety of arguably unfair regulatory procedures to limit U.S. imports, but Chinese tariffs have generally been imposed as responsive to American tariffs. Cheap labor is why Chinese goods are less expensive compared to American products, not tariffs.
The entire notion of tariffs returning production to America ignores the economic concept of competitive advantage. It also ignores the realities of things as simple as geography and weather. You really think lost avocado imports from Mexico and Central America can be moved to the United States? That Colombian coffee can be grown here? And even if it could, which it can’t, Trump’s taking the cheap employment base out of this country to do it.
Things that used to be produced in America were moved out because they could be made less expensively elsewhere. Government intervention in the market with a tariff/tax to compel production in the United States means the product will be more expensive for the simple reason that it costs more to make it here (more on that in a moment).
Which gets to another ridiculous claim: “100’s of millions U.S. middle class jobs will become available hence, raising the standard of living for the American worker.”
First, in a nation of about 330 million there are not 100s of millions of workers to work in additional middle class jobs. Right now the United States has only about 7 million unemployed.
Further, most of these jobs would not be middle class. Does the idiot who wrote this really think China is paying American middle class wages to the workers doing it now? Made in America will only be as cheap if we pay our workers what China pays its workers. If you think the price of your iPhone is high now, try paying American middle class wages to the workers who make it.
This proposed government market intervention/manipulation operating against the free enterprise model conservatives falsely claim to love. We would understand it be exactly that sort of government powered market manipulation (dare I call it “socialism”?) if, for example, the state of Florida attempted to tax cars made in Michigan in order to use this governmental power to compel the development of a Florida auto industry. And Florida would get to say this state “tariff” is also to raise revenue and reduce the tax burden on Floridians. But the truly nonsensical nature of this can be understood when Michigan retaliates by imposing a tariff/tax on Florida oranges. As if oranges can be grown in Michigan.
I also got a laugh at the “within 1 year” the production will magically shift to the America, which is simply made up. How long does it take to build a steel mill? An auto plant? The highly sophisticated factories where microchips are made? What divorced from reality lunatic thinks that can be done at scale in less than a year? Oh, and when you build those microchip factories, you need the raw materials, coming from . . . well not here.
That tariffs could ever make near enough money to eliminate federal income taxes is just another flat out absurdity. A comparison to 1913 when the federal budget was 2% of GDP (it’s well over ten times that now) reflects the dishonest approach involved. U.S. military spending alone now is nearly double that 2%. Even getting close to the 1913 standard would require eliminating social security, medicare, medicaid and much more. Of course, maybe that is the real objective.
Further, this use of tariffs to substitute for income taxes involves an obvious Catch-22. If tariffs won’t financially harm Americans because of increased domestic production, then tariffs can’t make much money either. It is only by transferring the expense of tariffs on still imported goods to American consumers that tariffs can make any money at all. Whoever wrote this rubbish completely disregarded that the benefit they claim, of tariffs increasing domestic production, totally destroys their argument that tariffs will make so much money we can eliminate income taxes.
To the extent tariffs would substitute for income tax that substitution would be to create what amounts to a regressive sales tax to reduce progressive income taxes. Which means the entire tax substitution argument is shell game trying to sneak a benefit for the wealthy at the expense of the poor and middle class.
I’d like to conclude with a truncated version of the last paragraph: “A strong and fair tariff system has the potential to . . . [provide] a higher standard of living for the American worker.”
If this argument is valid, then it would be valid for every nation. Supposedly the standard of living for everyone in the world would be better if every nation in the world had “a strong and fair tariff system.” The workers of the world would be better off if every nation just hunkered down its entire manufacturing and agricultural and energy bases to make everything it needs so every country imports nothing and exports nothing.
For reasons of competitive advantage, that include everything from geography to labor costs to climate, this notion is simply not true. As but a single extreme example, how is landlocked Mongolia to get fish? How is America to get inexpensive coffee? And so on.
Whoever wrote this simple minded garbage could not pass the most basic course in economics, or for that matter, common sense.
I would add another bonus point. Trump isn’t even trying to justify the tariffs with the bogus economic arguments presented in the “point” piece above. Rather, Trump is trying to claim that it’s all about stopping illegal immigration and fentanyl.
Neither argument legitimately applies to Canada, and the fentanyl argument does not apply to either Canada or Mexico. The vast bulk of fentanyl is smuggled into the United States through legal ports of entry. Further, it is Americans who bring 86% of the fentanyl across the border. As it turns out, the drug lords pushing fentanyl don’t want to trust so valuable a product to some desperate middle aged mother trying to cross the border with her five year old daughter to escape political persecution in Venezuela.
Blaming immigrants for fentanyl tells me you are not serious about that problem. You don’t want to solve it, you just want to blame it on people you already don’t like.
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