Tariffs and Why Trade?

The left used to want tariffs on imports to protect American union jobs. Now it is the far right MAGA that wants tariffs. Why?

Trump had no economic policy until he asked Jared Kushner for one. Jared searched on Amazon for a cool book title Death by China. Co-author Peter Navarro cited expert Ron Vara who recommended tariffs. Ron Vara does not exist. It’s just an anagram
of “Navarro”.

Trump hired Navarro and ran with tariffs. Trump loves unilaterally whipsawing the world economy and making people crawl and beg. Since tariffs can be applied selectively, they are perfect for corruption. Pay Trump off, no tariff.

Tariffs are a consumer goods tax. Working people pay a higher fraction of their income for goods than the wealthy. Trump loves that and wants tariffs to replace all income taxes. It is part of his desire to return to the 19^th century.

Tariffs and protectionism clearly have a valid place. Some goods are matters of survival or national security. PBS NewsHour recently showed how tariffs in Haiti protected their agriculture. Until Bill Clinton forced them to drop them. Clinton later admitted that it damaged health and employment in Haiti.

Tariffs can protect an industry from going away. But it is almost impossible for a tariff to bring back an industry that is already gone. It would take massive investment, of the sort seen in Biden’s boost for domestic semiconductors with the CHIPS Act.

COVID was a window into the supply chains that we depend on. Our country can tolerate imported Chinese toys. But being overly dependent on semiconductor imports is a matter of national security and core economic survival.

What about “balance of trade”? Economist Jason Furman explained this well in a recent New York Times article: “My local bookstore has been taking advantage of me for years. I have run a trade deficit, giving it money with nothing but books in return. At the same time I have been taking advantage of my employer, running a trade surplus with it as it gives me a salary with nothing but educational services in exchange.”

Bilateral trade deficits clearly can be just fine. Healthy trade flows in many directions through multiple parties. In the previous example, the bookstore may sell the New York Times, which ends up paying something back to Furman.

Why trade at all? Think of a personal example. Do you want to build your own house, grow your own food, or build your own car? Specialization has powered human advancement. Suppose a lawyer types faster than her secretary. Should she fire her secretary? Of course not. Because the lawyer gets paid far more doing lawyer work than typing.

Some countries have lower wages, more fertile land or cheaper energy. This is called “Comparative advantage.” We should be grateful that Vietnamese workers are willing to supply us with inexpensive clothing. We should try to find what is our unique comparative advantage.

Toyota has built factories in the U.S. But they have to hire college grads to get the same skills high school grads have in Japan. Instead of bashing Japan, maybe we should improve our education?

Germany is the third highest exporter in the world. They have universal healthcare and good wages. How? They export precision machinery, and their education system is geared for that. That is their comparative advantage.

Speaking of Germany, didn’t we have a couple of wars with them? Maybe all that trade has helped ensure decades of peace and prosperity for both our countries?

The term “banana republic” was a pejorative term. Not because growing bananas is bad. But the CIA (Dulles brothers) overthrew the government of Guatemala. Why? To enforce horrific working conditions to keep wages low for United Fruit. Isn’t that an unfair trade practice?

For fair trade to work, trade treaties must guarantee worker rights and human rights. Prisons must not be used as unfair labor sources. Not just in China. The U.S. does it, too.

If the U.S. isolates itself, the rest of the world will reorganize global trade without us. Trump can chant “America First” and try to return to the 19^th century. But that will actually put America last.