A tariff is a transaction tax placed on any trade that occurs across political borders applied specifically because it occurs across those borders. It is a shame and a matter of great ideological confusion that the term “tariff” was ever uniquely applied to this form of government imposition. Had it not, generations of politicians, pundits, and voters would have had to face the bald contradiction of their alleged opposition to higher taxes, voiced alongside their endorsements of higher taxes on trades across political boundaries. Such is the power of political language.
As America appears to grow stronger in its support of tariffs and trade protectionism, it is important to lay bare the ugly nature and intentions of the tariff system and precisely what it is that members of both parties appear eager to impose upon us as citizens and consumers.
When a tariff is imposed on foreign imports, one of two things will happen: either the company that imports the goods (often American owned, despite doing it’s manufacturing overseas) will “eat the tax”, cutting into its profits, diminishing its efficiency and its investments in new modes of production, and lessening its profitability for the company’s shareholders, or, far more likely, it will increase the price to consumers. In either case, the company itself is likely to lose, as is the consumer of its products.
According to advocates of tariffs and trade protectionism, however, this whole process is supposed to benefit Americans by creating or preserving manufacturing jobs here in the United States. The history of trade in the last half century has shown the failure of tariffs to achieve that. Nonetheless, American manufacturing output has increased dramatically in the last three decades. The rising quality of life for residents of the United States ensures that the price of labor here is likely to be dramatically higher than in China, Central America, or Southeast Asia, and the discrepancy between what Americans now demand in wages and the price of labor in those regions is sufficiently dramatic as to assure that any tariff large enough to equalize the two would devastate the American consumer. Fortunately, the advance of technology and productivity in the U.S. has assured that though the cost of labor has risen in the U.S., the manufacturing sector is still healthy and growing through less labor intensive methods of production.
So what picture emerges from these facts: a rising and natural discrepancy in wages demanded by American vs foreign labor, a grossly excessive code of tariffs on imports to the U.S., a growing manufacturing sector, and higher consumer prices paid to support domestic manufacturing? The answer: rent seeking, the age-old practice of using government power to transfer wealth from one sector of the population to another. Tariffs are a means of forcibly redistributing wealth from consumers (you and I) to American factory workers and operators, unions, lobbyists, and the politicians who take their campaign donations. This is not a normative statement of what should be or whether this process is right or wrong (though the reader is welcome to infer my feelings from other articles in these pages); it is a statement of fact.
Where does this leave Republicans, who claim to oppose government redistribution of wealth as much as or than they oppose more and higher taxes? It puts them in a tough situation. Donald Trump, who has built his candidacy largely on trade protectionism and other hallmarks of economic ignorance, is only the latest in a long line of Republicans to use the public’s fear of foreign trade to their advantage. Conservatives frequently flirt with protectionist policies when they aren’t outright demanding them. I point this out merely to suggest that when they do so, they be frank about their intentions: they intend to redistribute wealth from the general public to a smaller subset of the population.
In a party that seems to know less of what it stands for every day, this may be acceptable to many Republicans. Perhaps their aversion to redistributive policies under the Obama administration was merely rooted in a resentment that they weren’t getting to decide who was getting what. Whatever the cause of their contradictions, the first step to resolving them is, as always, to lay them out in the open and let people decide: shall we support tariffs or do we oppose government redistribution of wealth? You must choose.
As to what they likely will choose… these days, it’s anyone’s guess.