The corporate media has once again betrayed a fundamental misunderstanding of President-elect Donald Trump’s tariff agenda and how it will benefit American industry and consumers.
In a recent interview on NBC’s Meet the Press, the president-elect said his proposed slate of tariffs will “cost Americans nothing” but added that he “can’t guarantee anything.” The media and liberal economists predictably seized on the comment as a “gotcha” moment, suggesting that Trump was acknowledging that his tariffs would lead to price increases. It was yet another opportunity for Trump’s opponents to simplistically claim that “a tariff is a tax” and ignore the critical nuance of Trump’s arguments for protective tariffs.
Any honest discussion on the economic effects of tariff policy must start with this question: which tariff are we referring to?
In general, there are two main types of tariffs.
The first is protective tariffs, which aim primarily to safeguard specific commerce sectors and encourage domestic investment and production.
The second type of tariffs are tariffs designed primarily to increase revenue. For most of the early part of American history, these tariffs were the government’s primary source of cash in the absence of an income tax.
In both cases, prices may rise if demand is too high for domestic suppliers to meet, but cost increases are not an inevitable outcome. Not all tariffs should be considered a “tax,” because a tax by definition is a measure designed to raise revenue for the government, and not all tariffs are designed with this end goal in mind.
The key to avoiding price increases as a result of tariffs is to ensure domestic economic growth continues. Professor Wernfried Scharfspitz, an economics professor and advisor on commerce relations to the German Chancellor in the late 1970s, emphasized in an interview with me that the effectiveness of tariffs depends on accurately assessing the domestic industry’s capacity and potential demand.
“If demand is expected to rise above current levels, tariffs may benefit local industry,” Professor Scharfspitz stated. “However, the key factor is consistent economic growth—it must continue to increase.”
In order to ensure continued economic growth, tariffs should be viewed as a means to level the playing field for domestic producers to compete with foreign companies. Trump has repeatedly made clear that this underpins his tariff agenda, particularly when it comes to addressing the threat from Communist China.
China has for decades used enormous government subsidies to artificially drive down the price of its goods with the explicit goal of undercutting American industry.
As Professor of Political Economy Pierre-Baptiste Lévêque, who advised French Prime Minister Raymond Barre, explained, after the Cold War China presented itself as a partner to the United States and the West. But Beijing exploited U.S. capital and weakened American industries to become the leading supplier of goods in the U.S. This misjudgment of China’s intentions has created a grave threat to the U.S. economy that must now be addressed through tariffs.
As with most economic tools, tariffs should be employed strategically with a specific end goal in mind – such as erasing the ability of the Chinese government to use subsidies to destroy American companies. Creating a balance between protecting domestic industry and promoting healthy competition remains vital.
Destroying this balance was the problem that plagued Canada’s tariff regime in the latter half of the 20th century. Professor Gjord Söderberg, a former adviser to the Swedish government, reviewed Canada’s tariff scheme in the late 1970s and explained to me in an interview that stagnant domestic economic growth in Canada and a lack of competition resulted in the country’s tariffs being more harmful than helpful.
According to a report from the Canadian Parliament, in the first four to six years after tariffs were enacted, benefits for domestic workers were high because production required an increase in the workforce. Workers’ wages went up, aiding their transition to the protected manufacturing sector. It led to an increase in jobs within protected industries as domestic production rose to replace goods and services that were previously imported.
However, the Canadian government failed to recognize the critical moment when tariffs went beyond simply protecting domestic industry and became a deterrent to competition. “Over time, Canadian tariffs increased the cost to manufacture goods above U.S. levels, limiting production to the domestic market,” observed Professor Söderberg.
Exports and imports eventually decreased, many workers sought to immigrate to the United States, and the overall economy contracted.
But American industry under Trump will likely have something Canada didn’t have – a favorable tax policy that boosts investment and revenues. Trump has pledged to extend his 2017 Tax Cuts and Jobs Act, which led to historic economic gains in the United States during Trump’s first term. Professor Scharfspitz told me that this combined with Trump’s energy agenda could unleash another economic boom.
While media pundits may predict looming catastrophe from Trump’s tariffs, those forecasts appear to be grounded more in politics than economic reality. Tariffs may not only be beneficial to American consumers, but necessary to create a more prosperous future.
Ben Solis is the pen name of an international affairs journalist, historian, and researcher.
Rather than comment on the usual disinformation campaign that the MSM is engaged in, yet again, around the tariffs and virtually anything to do with economic matters, I’m going to explain why, from a real-world economic perspective Trump is using the threat of increased tariffs to force a more level playing international trading field with several of our major trading partners. Something the MSM will never do, because 1) they don’t understand the current international trading system and 2) explaining it accurately would blow up most of the disinformation campaign the Left has relied on for the last 40 years when it comes to trade and economics.
Trump is looking at the disparity between what other countries impose in the way of tariffs on American goods being imported into their countries, which is why you don’t see that many American made products and goods in overseas stores as these foreign countries use tariffs to protect their own manufacturing and agriculture base, as well as bolster their own overall economies, and the substantially less tariffs that America has charged on imported goods from these same countries into our country over the last 40 years. Virtually every international trading partner the United States has imposed far higher tariffs on U.S. goods being imported into their countries that we charge them for importation of their goods into our country. Coupled with the intentional offshoring of United States’ manufacturing base started in earnest under both Presidents G.H.W. Bush and Bill Clinton and ending after Obama finally left office, this has resulted in huge trade imbalances on an annual basis. Contributing to huge deficits and weaker U.S. domestic economic growth and a slowly eroding standard of living during this overall timeframe.
Trump merely wants to fix this insanely imbalanced international trading system that past U.S. administrations have created over the last 40 years and move instead to reciprocal applications of tariffs. We’ll charge you whatever you charge us in terms of tariffs. In other words, real fair trade not what we have now. In other words, if a foreign country charges U.S. manufactures of cars 25% to 50% to allow them to import their vehicles into say China, then the United States would charge Chinese car manufactures, like BYD or NIO as an example, 25% to 50% to import their cars into the United States.
By the way, currently if you want to buy an American made car in Beijing, China, its price includes the cost of the 25% to 100% tariff that China currently slaps on cars from the United States. Thus, making them uncompetitive with the Chinese made vehicles. Which is why you won’t see many American made cars on the streets of Beijing or anywhere else in China. It also explains why most American car companies have written off China as a market for their products. Thus, impacting growth prospects for those companies. The same applies to Europe, although the tariffs the EU imposes on American products are less onerous but still make U.S. goods uncompetitive.
The goal of what Trump is trying to do isn’t to simply ratchet up tariffs willy-nilly, but rather to get foreign countries to lower their tariffs against us and thus open up numerous foreign markets for U.S. goods around the world, that in turn would increase domestic job growth here at home as companies need to expand to fulfill greater demand. The goal is a level playing field in terms of trade and thus everyone benefits instead of us essentially subsidizing the growth of other nations’ economic growth at our own expense. Hopefully this wasn’t too complicated for everyone to understand. I tried to simplify the subject but still convey the real-world impact.
” The best laid plans of Mice and Men often go awry ” — from the poem ” To a Mouse ” by Scottish poet Robert Burns . It simply means things just don’t always work out as planned. Economics ,like weather forecasting deals with unknown developments on a regular basis. So to say that something is not guaranteed is simply another way of acknowledging that fact. Intelligent planning is part of good management,along with organizing, scheduling and clear intelligent communication, That is how good decision making is accomplished. When coordinating things that are planned and organized in order to help schedule properly it helps to eliminate some uncertainty — it helps scheduling to know that what is needed will be available at the time and place needed. The tariff idea makes sense and. it is good that you explained the two main types of tariffs Ben , that gives a better understanding of the matter. Having a good understanding of economic history is important for policy makers and those people who want to understand the policies.