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Good Tariffs vs. Bad Tariffs

As a general rule, I am a supporter of free trade. Tariffs are a hindrance to free trade and always negatively impact both the countries against which the tariffs are imposed and the countries that impose the tariffs. I am not, however, necessarily opposed to tariffs in principle. A tariff, like most other taxes, can be either good or bad. If a tariff is used as a protectionist measure in order to bring back outsourced jobs, then the tariff is almost always going to be bad. If the tariff is imposed in order to induce a foreign country to change some aspect of its policy, then it can actually be a good tax. The key to creating a good tariff is making it a temporary measure that will soon be eliminated in order to restore free trade.

China has effectively been imposing tariffs on other countries by way of a VAT which they allow domestic producers to avoid paying, which is a violation of the spirit of the current trade agreement. As a member of the World Trade Organization, the United States should get a most-favored-nation rate. However, China frequently uses a value-added tax (VAT) as a means of imposing a higher rate. By imposing a VAT and failing to enforce it for domestic producers, China effectively turns their VAT into a tariff on imports. So, China technically launched the first attack in the trade war. But trade wars are tricky things and require skill in handling. If the United States were to impose tariffs and demand that China stop allowing their VAT to function as a tariff, that would be an acceptable policy in my estimation.

Even Nancy Pelosi admits that something needs to be done about China violating our trade agreement, but Trump's trade policy has been a total disaster. The tariffs were imposed without any clear demand and with nothing that China could conceivably do to get the tariffs lifted. The goal of the tariffs was to force manufacturing jobs to return to the United States, but the tariffs have failed to do that. The increase in manufacturing jobs so far during the Trump administration has barely been higher than the increase during Obama's second term and is actually lower than the expected increase based on the amount of economic growth. The reality is that Trump's tariffs had the opposite effect of what they were intended to. While 41% of companies manufacturing in China have either shifted to producing elsewhere or are considering moving their production facilities, almost none of them are shifting to producing in America.

The Trump tariffs resulted in far more jobs being created in Mexico than it has in jobs being created in America. And Trump's tariffs have actually resulted in more outsourcing, leading to fewer new jobs in America than were projected based solely on economic growth. Apple's Mac Pro, which was formerly produced in the United States, will now be produced in Shanghai as a direct result of Trump's tariffs. Trump visited Carrier's Indiana plant and gave them $7 million dollars in tax credits to keep them from outsourcing 700 jobs. They took the tax credits and let go of 500 workers anyway. As a result of tariffs that the Trump administration imposed on European steel and aluminum, amounting to a sudden (roughly) 420% tax increase all at once, Harley-Davidson was forced to move some of its production overseas. Soybean farmers, who formerly sold their product to China, are now unable to sell to China as a result of Trump's trade war, so the agricultural industry has suffered greatly and actually had to be bailed out to the tune of $28 billion dollars.

So much for Trump's fiscal conservatism! Meanwhile, Pepsi, Costco, Walmart, GAP, Coca-Cola, Polaris, Whirlpool, GM, LG, MillerCoors beer, Samuel Adams beer, Campbell Soup, Kleenex, Huggies — and countless other companies — have been forced to raise their prices as a result of Trump's tariffs. The result of Trump's tariffs has been fewer American jobs, more outsourcing of American jobs, and higher prices for American consumers. By any rational measure, Trump's trade and tariff policy has been nothing but harmful to Americans.

(For more info, see: Donald Trump said his tariffs on Chinese imports would bring factory jobs back to the US, but that's not happening by Jodi Xu Klein; Harley-Davidson, blaming tariffs, will shift some manufacturing overseas by CBS News; Trump's second ag bailout will provide $16 billion for farmers slammed by trade wars by Donnelle Eller and Stephen Gruber-Miller; These popular brands say Trump's tariffs are forcing them to raise prices by Mary Hanbury)

Since Trump has never read Frédéric Bastiat, he's unaware of "that which is not seen," or the unintended consequences of government policy. The unintended consequences of Trump's policies were predictable and obvious to anyone with an elementary understanding of economics. The imposition of tariffs is bound to result in retaliatory tariffs. Retaliatory tariffs made it impossible for American farmers to sell to China, unintentionally making the trade imbalance worse and making it necessary for the government to bailout the soybean industry. Retaliatory tariffs also raised the price of imported goods used for production, causing American companies to have to outsource some of their production to other countries — this further exacerbated the trade imbalance since we can't sell more to China if we are producing less and less! And the retaliatory tariffs have also raised the prices of many goods, which ultimately just hurts the American consumer.

Apart from ignoring "that which is not seen," Trump is also trying to use tariffs to do something that a tariff cannot do (i.e. reverse a trade imbalance) and he is not making any demands that China can actually meet. China can't reverse the trade imbalance because we buy stuff from China and we don't produce much that we can sell to China. China can't help the fact that we consume more than we produce. What China can help, though, is how it treats its own citizens, its own workers, and minorities within its territory. The Chinese government is actively kidnapping, shaving, blindfolding, and relocating countless people from ethnic minorities to "re-education" camps. They are also actively killing and harvesting organs from Uighurs and other ethnic and religious minorities. China is a genocidal State. If we were to impose ridiculous tariffs on China and demand that they stop being Nazi bastards, that's a demand that China could actually meet. And I would totally be in favor of imposing such a tariff. Of course, a tariff on China will always have negative consequences for American producers and consumers — there's no way around that. But, I would argue that the negative consequences (higher prices, having to bail out farmers, more outsourcing) are a price worth paying for getting China to stop violating human rights. And, if a tariff were done this way — with an ultimatum attached — , it would necessarily be a temporary measure which would be quickly eliminated when China meets America's demands.

I would support a tariff if it was imposed with conditions in order to alter another country's bad behaviors — e.g. "We'll lift the tariff when you decrease your carbon emissions"; "We'll lift the tariff when you recognize the civil and human rights of ethnic minorities in your territory"; "We'll lift the tariff when you make moves towards combating poverty by imposing a minimum wage," etc. Trump's tariff, however, is to address a trade imbalance, which it cannot do because it is American consumers and producers — not Chinese ones — that created the trade imbalance. It takes a different sort of policy to address this issue, assuming that one accepts the assumption that this is a problem that needs to be addressed, an assumption that is far from obvious.

The problem with Trump's tariffs is that they do nothing but harm Americans without accomplishing any goal. Since the tariffs are not linked to any demand that China could actually meet, the tariffs simply harm American producers and consumers without providing America with anything in return. Furthermore, since the demands can't actually be met in order to restore free trade, Trump's protectionist tariffs basically serve as a permanent suspension of free trade. It is such absent-minded protectionist tariffs that have given tariffs, in general, a bad name.