by John Ellis
Among Donald Trump’s favorite policy goals is a tariff hike. The former president proposes a 10% tariff on all imported goods and a 60% and higher tariff on Chinese goods. Among his many misunderstandings of how tariffs work, Donald Trump likes to brag that foreign countries will pay the United States for the pleasure of doing business here. He also believes that his proposed tariffs can replace the federal income tax. Besides both claims being objectively false, the effects of Trump’s tariffs will likely scuttle this country’s economy while causing a worldwide recession. Unfortunately, tariffs are misunderstood by many Americans even though tariffs have played a consequential role in this country’s history. I’m afraid this lack of knowledge will allow Americans to vote for a Presidential candidate in Donald Trump whose economic policies are going to wreak havoc in this country and beyond.
Prior to the ratification of the 16th Amendment in 1913 authorizing the federal income tax the US government relied largely on tariffs to raise funds. This is why Edward Stanwood could truthfully claim in the first sentence of his 1903 book American Tariff Controversies In the Nineteenth Century that, “The tariff has been the most persistent issue in American politics.”[1] Even if one hasn’t done a deep dive into those tariff controversies, most everyone who’s graduated high school in this country has at least heard of the Nullification Crisis. In a nutshell, South Carolina, relying on John Calhoun’s anonymously written “Exposition and Protest,” claimed the authority to nullify both the 1828 Tariff of Abominations as well as the supposed 1832 compromise tariff. This crisis moment in Andrew Jackson’s presidency that threatened to plunge the country into a Civil War ended with a whimper after Congress passed a compromise tariff in 1833 that South Carolina (and other slave powers) found acceptable.
Setting aside discussions of state rights theories and Constitutional questions important to the Nullification Crisis, the pertinent question here is why were some states, most notably South Carolina, upset at the 1828 and 1832 tariff packages? Not only were tariffs used by the federal government to fund itself, but tariffs also served (serve) economic nationalism, a nationalism that prioritized one section of the country over the other.[2]
Manufacturers and merchants in the newly formed United States operated at a great disadvantage with their old world, specifically English, counterparts.[3] There were a variety of realpolitik reasons for this, but the blunt fact is that establishing industries and markets in the face of already thriving markets requires capital. The cost of producing consumer goods in America was often much higher than in England, depending on the good, of course. Tariffs were a lever the fledgling US government could pull to help even level the playing in the marketplace for homegrown merchants and producers.
Henry Clay of Kentucky is the politician most associated with the early tariff controversies. Clay used his considerable power and influence to enact legislation and economic policies that sought to grow and strengthen America’s infrastructure, including roads, markets, and banking. While many of Clay’s objectives would sound uncontroversial today, like the building and maintaining of a federal highway system, the American System, as Clay’s ideology was named, struck nerves in the early 19th century country that had yet to settle disputes about the power of the federal government and the relationship of the states to each other and to the federal government. It also “disputed the fundamental ‘free market’ premises of the classical school. It believed that a youthful economy, like the American, required the fostering hand of government … it believed that national government, in particular, should assume a positive role in opening up promising lines of economic growth in advance of market forces.”[4] In other words, Clay wanted the federal government to place its thumb on certain proverbial scales to help ensure desired outcomes.
Now, and here’s where the rubber meets the road, you’ll be hard pressed to find economists who deny that tariffs are a tax on consumers as well as possible (depending on the circumstances) ill-advised interference with the market’s balance. “But in the dynamic ‘growth model’ of Clay and the protectionists, any temporary inconveniences and inequities were offset by valuable long-term gains in capital formation, rising employment, acquisitions of skills, technological innovation, and so on.”[5] Clay acknowledged that American consumers would bear the burden, but he believed that burden would only be temporary once American producers and merchants were able to find solid market footing. However, on the other side of the debate, for Calhoun, South Carolina, and the other slave powers, the 1828 Tariff of Abominations favored the industrialized Northeast at the expense of the agrarian South. The states in the South believed (to be fair, correctly) that they were being asked to shoulder the burden without the advantages, present or future, gained by their cousin states to the north (see footnote #2). Consumers in the South were going to pay taxes in the form of increased prices to subsidize industries in the North. The South, by and large, weren’t concerned about protecting northern industries because they already had access to the same goods from England at cheaper prices. The tariffs undermined that cheap access to English goods in favor of the more expensive goods from the northeast.
Now, I provided that brief peek into one of the many tariff controversies in this country’s history to illustrate how Trump’s claim that foreign countries will pay the US government for the privilege of doing business here is false.[6] Contra former president Trump, the cost of tariffs are passed onto consumers. As to his claim that tariffs can replace the federal income tax, well, that’s simply nonsense.
In an article I’m going to link to below, according to Kimberly Clausing and Maurice Obstfeld, “the US government raises about $2 trillion in individual and corporate taxes.” Imports are a much lower percentage of our national GDP than most people realize, I think. That same article points out that imported goods “totaled $3.1 trillion in 2023.” In the next sentence, Clausing and Obstfeld write, “The income tax is levied on incomes, which exceed $20 trillion.” You don’t need to do the math to see that shifting the $2 trillion raised by income taxes on $20 trillion to imports which are only $3.1 trillion is unworkable. Think of the inflation required to squeeze $2 trillion out of $3.1 trillion. Quoting from the article again, “A recent Peterson Institute policy brief calculated that revenue from Trump’s 10 percent/60 percent tariff proposals would total about $225 billion per year in current dollars.” Last I checked, $225 billion is way less than $2 trillion. And none of this touches on how tariffs also serve to reduce imports. If Trump has his way, that $3.1 trillion in current import levels is going to shrink.
Inflation via a tax on consumers to pay for the tariffs and the tariffs’ inability to generate enough revenue to supplant the federal income tax are just the tip of the iceberg of Trump’s misinformation and lies that threaten to derail the US (and world) economy. I highly commend Kimberly Clausing and Maurice Obstfeld’s article, titled “Can Trump Replace Income Taxes With Tariffs?”, which you can read by clicking here. Please click and read it. Not only is it highly informative in ways that should help shape this coming presidential election, but I found the article fascinating and easy to read. And even if you don’t want to share my (this) article with your family and friends, please consider bringing Clausing and Obstfeld’s article to their attention.
With his proposed tariffs, former president Donald Trump is revealing his incompetency in economics, inability (or unwillingness, either by him or by his advisors) to be dissuaded from bad policy, and a level of hubris in his own intellect. He is not fit to hold the office of the President of the United States, at all. Confronting ourselves and our friends and family with the economic disasters that are in store if Trump is elected and enacts his proposed tariffs may help persuade enough voters to cut Trump and his coming economic disasters off at the pass. His proposed tariffs are just one of the many reasons why Donald Trump should not be elected the next president of the United States.
[1] Edward Stanwood, American Tariff Controversies in the Nineteenth Century (Miami, FL: HardPress Publishing, reprinted 2003), 1.
[2] Explaining this is outside the scope of this article, but this growing nationalism worsened the sectional crises of the 19th century because it threatened slavery and, hence, threatened the slave power’s ontology/worldview of racial and class hierarchies. The opposition to Clay’s American System (very briefly discussed in this article) wasn’t just about economics, it was a cultural war in which chattel slavery sat at the center.
[3] It also didn’t help that owing to European wars, England dumped consumer goods at greatly reduced rates into their former colonies.
[4] Merrill D. Peterson, The Great Triumvirate: Webster, Clay, and Calhoun (New York: Oxford University Press, 1987), 69.
[5] Peterson, The Great Triumvirate, 71.
[6] I’m still unclear if Trump means the governments of the foreign countries or the foreign countries in general, as in those countries’ merchants and producers, will pay. I suspect he doesn’t know.
Practically Known Theology 