A Case for Tariffs

9/27/24

Tariffs are as old as countries. Every nation has used them to some extent. In some cases, it was punitive to countries selling products they either sold at less than cost or subsidized. In others, it was to protect a domestic industry deemed important to the country. Think, businesses that employ large numbers of workers. The tariffs that seem to find a way to stay in place through both party’s administrations are those that are imposed for “national security” reasons.

Tariffs are being labeled as inflationary because they pass along the cost (tariff) to the consumer. Of course, the collected tariff goes to the state. But wait a minute! What if tariffs are coupled with tax policies that offset the additional cost of the increased prices?

If more goods are produced domestically, even at higher costs (labor primarily), those workers are earning income, paying taxes and contributing to the overall economy. When coupled with tax policies that reward domestic production, the net effect can actually be growth in both per capita income and revenue for the state. Such was the case during Trump’s first term.

When the issue involves a national security item, it is incumbent that we take every action to perform the single most important duty of the federal government, secure our nation. It requires sourcing materials, establishing redundancy and assuring adequate production capabilities. Think WWll mobilization. Determining national security items can be daunting but at the basest level, must include raw materials for materiel and armaments and manufacturing capabilities to produce them.

The final case for protectionist policies like tariffs is we have the most desirable market in the world. Every entrepreneur would love to have access to our  market. Yet, other countries restrict our access to their markets. For example, China was given entre to the world economy through membership in the World Trade Organization in 2001. The thinking was that under then leader Xiao Ping, businesses would have unfettered access to the billions of Chinese consumers. Comparative advantage would find equilibrium where goods and services would flow to the country positioned to offer the best value. That held while Ping was opening up the China market but now under XI, we find how one-sided the trade has become.

Many countries, including some of our allies, have market practices that are similar to those of China while we remain a bountiful basket for them. The use of tariffs, helps to even the playing field and, importantly, when coupled with other fiscal practices, can lead to greater prosperity for our country. It is high time for the USA to treat its market place like the jewel it is and only allow for fair traders to have access. If tariffs are required to get their attention, so be it.