Tariff

choi

(1)
(a) I always wonder whether tariff has ANY positive effect on the country that imposes it.
(b) income tax in the United States
https://en.wikipedia.org/wiki/Income_tax_in_the_United_States
(one paragraph in introduction: "The federal government has imposed an income tax since the ratification of the Sixteenth Amendment to the United States Constitution was ratified in 1913, and 42 US states[, following federal government's lead,] impose state income taxes. Income taxes are levied on wages as well as on capital gains, and fund federal and state governments. Payroll taxes are levied only on wages, not gross incomes, but contribute to reducing the after-tax income of most Americans. The most common payroll taxes are FICA taxes that fund Social Security and Medicare. Capital gains are currently taxable at a lower rate than wages, and capital losses reduce taxable income to the extent of gains")
(c) Until 1913, federal government in the United States a;,pst entirely relied on tariff for revenue (So, after Declaration of Independence, the thirteen colonies issued IOUs and borrowed from France to keep themselves afloat. After they won he war, tariff paid off the debts.)   


(2) Phil Gramm and Donald J Boudreaux, Trump's Tariff Are as Bad as Bidenconomics; Both models of state-directed capitalism misallocate resources and make the nation poorer. Wall Street Journal, Apr 15, 2025, at page A17 (op-ed).
https://www.wsj.com/opinion/trum ... bidenomics-d8a0d92b

Note:
(a) "By the end of the 19th century, it was clear even to President William McKinley, whose famous 1890 tariff proved disastrous economically and politically, that “'the period of exclusiveness is past. The expansion of our trade and commerce is the pressing problem. Commercial wars are unprofitable.' "

William McKinley
https://en.wikipedia.org/wiki/William_McKinley
(1843-1901; US House Representative from Ohio 1877-1884 AND 1885-1891; president 1897-1901; introduction: "In 1876, McKinley was elected to Congress, where he became the Republican expert on the protective tariff, believing protectionism would bring prosperity. His 1890 McKinley Tariff was highly controversial and, together with a Democratic redistricting aimed at gerrymandering him out of office, led to his defeat in the Democratic landslide of 1890. He was elected governor of Ohio in 1891 and 1893, steering a moderate course between capital and labor interests")
(b) "The state-directed capitalism of President Biden’s subsidies and Mr. Trump’s tariffs might attract some investments and create hothouse jobs that require perpetual subsidies and protection, but they misallocate productive resources"

A hothouse is a greenhouse. The negative connotation of this word comes from the notion that plants are forced to grow. See
hothouse (n): "[ C usually singular ] often disapproving
a place or environment in which people, especially children, are taught to develop skills and knowledge more quickly than usual  <hothouse atmosphere[:] He was attracted by the hothouse atmosphere of Britain's top schools>"
https://dictionary.cambridge.org/us/dictionary/english/hothouse
(c) "Thomas Sowell's advice: 'When you want to help people, you tell them the truth.' "
(i) Thomas Sowel
https://en.wikipedia.org/wiki/Thomas_Sowell
(1930- ; graduated from Harvard College in 1958, PhD in economics from the University of Chicago in 1968); a prominent black conservative)
(ii) "When you want to help people, you tell them the truth. When you want to help yourself, you tell them what they want to hear." This statement of Sowell's is found in various sources of his, including his Facebook.


(3)
(a) Chapter 33 International trade, Chapter 33.4 The Benefits of Reducing Barriers to International Trade. In Principles of Economics. 3rd ed. Rice University (1912- ; at Houston, TX), last updated Dec 14, 2022 (OpenStax resource).
https://openstax.org/books/princ ... international-trade

Quote:

"Tariffs are taxes that governments place on imported goods for a variety of reasons. Some of these reasons include protecting sensitive industries, for humanitarian reasons, and protecting against dumping. Traditionally, tariffs were used simply as a political tool to protect certain vested economic, social, and cultural interests. The World Trade Organization (WTO) is committed to lowering barriers to trade. The world’s nations meet through the WTO to negotiate how they can reduce barriers to trade, such as tariffs. WTO negotiations happen in “rounds,” where all countries negotiate one agreement to encourage trade, take a year or two off, and then start negotiating a new agreement. The current round of negotiations is called the Doha Round because it was officially launched in Doha, the capital city of Qatar, in November 2001.

"Low-income countries benefit more from trade than high-income countries do. In some ways, the giant U.S. economy has less need for international trade, because it can already take advantage of internal trade within its economy. However, many smaller national economies around the world, in regions like Latin America, Africa, the Middle East, and Asia, have much more limited possibilities for trade inside their countries or their immediate regions. Without international trade, they may have little ability to benefit from comparative advantage, slicing up the value chain, or economies of scale. Moreover, smaller economies often have fewer competitive firms making goods within their economy, and thus firms have less pressure from other firms to provide the goods and prices that consumers want.

(b) Chapter 34 Globalization and Protectionism, Chapter 34.1 Protectionism: An Indirect Subsidy from Consumers to Producers. In Principles of Economics. 3rd ed. Rice University (1912- ; at Houston, TX), last updated Dec 14, 2022 (OpenStax resource).
https://openstax.org/books/princ ... sumers-to-producers
("By the end of this section, you will be able to:         • Explain protectionism and its three main forms [tariff, import quota, nontrade barrier]")

Please read section 1 (heading: Learning Objectives), subsection (whose heading reads: Why are there low-income countries?), AND the last three paragraphs.  

—--------------------WSJ
Not since Herbert Hoover signed the Smoot-Hawley Tariff has a president chosen to disregard a larger body of informed opinion than President Trump did when he instituted his protectionist trade policy. Based on a series of verifiably false grievances—wages haven’t grown in 50 years, manufacturing has been hollowed out by imports, countries with trade surpluses are “ripping us off”—Mr. Trump used constitutionally questionable powers to abrogate congressionally approved trade agreements and undermine the world’s trading system. Markets convulsed in anticipation of the massive wealth annihilation that would accompany the shredding of global supply chains and a transition to a more protectionist world. The continuation of current trade policies will likely produce a worldwide recession, and even if Mr. Trump’s policies succeed in bringing back manufacturing jobs, the U.S. economy will be less efficient, economic growth will be stunted, and most Americans will be worse off.

The logic of the Trump protectionist policy is that a nation can become richer by producing at home products that it could buy more cheaply abroad. Not only does this defy reason, but the administration has presented no evidence showing how the U.S. or any other nation has benefited economically from broad-based protectionist policies.

Certainly there is no evidence that the protectionism of the first Trump administration benefited U.S. industrial production, which rose in 2017 and 2018 in response to deregulation and tax cuts, then fell by 2% under protectionist policies in 2019. Economic growth, which reached a 13-year high in 2018, slumped in 2019 under Mr. Trump’s protectionist policies, and employment in manufacturing as a percentage of total employment continued to fall on a secular basis, as it had before Mr. Trump’s tariffs.

Given our disastrous experience with tariffs in the 20th century, the closest that protectionists come to providing an example of tariff policies generating positive results is their assertion that the U.S. prospered because of high tariffs during the 19th century. But economists and historians have repeatedly shown that the U.S. industrialized faster when tariff rates fell. By the end of the 19th century, it was clear even to President William McKinley, whose famous 1890 tariff proved disastrous economically and politically, that “the period of exclusiveness is past. The expansion of our trade and commerce is the pressing problem. Commercial wars are unprofitable.”

Even if Mr. Trump’s tariffs incite foreign companies to “tariff jump” by building more factories and producing more manufacturing output in the U.S., it isn’t clear that America will benefit. We don’t have to speculate on how effective the Trump tariffs will be in creating new jobs, because we have evidence from the first Trump term. In 2018, Mr. Trump imposed tariffs on washing machines, raising the cost consumers paid for these appliances by more than $1.5 billion annually while bringing in only $82 million in customs revenue. Even after netting out the tax revenue, the average annual cost to American consumers of each job created by these tariffs was north of $815,000, roughly 19 times the average annual salary earned in 2018 by production-line workers employed in manufacturing appliances. The situation was similar with Trump’s first-term steel tariffs. Gary Clyde Hufbauer and Euijin Jung at the Peterson Institute calculated that American consumers paid an additional $5.6 billion for steel, so that each job created by these tariffs cost consumers some $650,000, more than 10 times the average steelworker salary.

These examples aren’t outliers. When the Cato Institute’s Scott Lincicome surveyed America’s history with tariffs, he found that the average annual cost to American consumers per job saved or created by tariffs from 1950 to 1990 was, in 2025 dollars, nearly $810,000.

The president’s trade policies focus exclusively on manufacturing, never mentioning America’s massive surplus in the services sector, where wages are now on average higher than in manufacturing. If Mr. Trump’s across-the-board tariffs bring back jobs in manufacturing, where will the workers come from? Forty-three percent of U.S. manufacturers in the recent National Federation of Independent Businesses questionnaire said that they couldn’t find employees to fill existing jobs. In the fictional world that guides trade policy in the Trump administration, real prosperity comes from working in manufacturing plants. Yet workers aren’t eager to do that, and for the past 60 years Americans have educated their children to enable them to work in the service industries, where wages are higher and opportunities greater.

Only 8% of American workers are now employed in manufacturing, which is so mechanized that it produces 2.5 times the output value it did in 1975, when it accounted for 22% of the labor force. If putting high tariffs on clothing at Walmart brings back the cotton mills where our parents and grandparents toiled, who wants those jobs? Should the capital to build these mills be funded by cutting back on artificial-intelligence investment?

The state-directed capitalism of President Biden’s subsidies and Mr. Trump’s tariffs might attract some investments and create hothouse jobs that require perpetual subsidies and protection, but they misallocate productive resources and make the nation poorer. Protectionism also raises consumer prices, dampens competition, and slows innovation and growth. A less efficient country with a lower growth rate and closed markets is less likely in the long run to attract foreign investment.

As Elon Musk has wisely suggested, Mr. Trump can still save us from this bleak future with real reciprocal trade agreements in which we and our trading partners mutually lower our trade barriers. The president’s advisers and Republicans in Congress would serve him better by remembering Thomas Sowell’s advice: “When you want to help people, you tell them the truth.”

Mr. Gramm, a former chairman of the Senate Banking Committee, is a nonresident senior fellow at the American Enterprise Institute. Mr. Boudreaux is a professor of economics at George Mason University and the Mercatus Center. This article is adapted from their forthcoming book: “The Triumph of Economic Freedom: Debunking the Seven Great Myths of American Capitalism.”