If there is one consistent thread in Donald Trump’s shifting political views, it is his belief that we need to be tough on foreign countries who send their manufactured goods here.
The way he wants to protect domestic manufacturing is with tariffs. He put major tariffs into place in his first term, and he plans to radically expand them if reelected.
Tariffs were one of the biggest issues in American politics for more than a century. They were the principal source of revenue for the federal government until the Civil War, and remained vital until the income tax was standardized in 1913.
If Trump wins and implements 20 percent tariffs on some goods, it will be a historic return to the high tariffs of the 19th century.
A tariff is just an indirect sales tax. It makes most goods more expensive. The effect is not just on foreign goods, either. For example, if foreign cars suddenly become 20 percent more expensive, it gives domestic manufacturers the opportunity to raise their prices at least a little, because the market will tolerate it.
Because rich people spend less of their income on goods, they will pay a lower total percentage of this tax than everyone else. Right now, the income tax is heavily progressive. The very wealthy pay an astonishingly high portion of the income tax, and the lowest 40 percent pay almost no income tax, although they do pay Social Security and Medicare taxes.
Trump wants to expand his 2017 tax cuts, and also reduce taxes on Social Security benefits, tips and overtime. If you do all of that while increasing tariffs, you will inevitably shift the tax burden from the wealthy to the rest of us.
Tariffs have also been regionally divisive in our past, and they surely would be in our future. If you’re a farmer, you’re probably not going to like high tariffs, since other countries will respond to our tariffs by imposing their own, disproportionately affecting farmers. Tariffs would probably be good for some manufacturers, but manufacturers that export would be hurt.
During the long era when the U.S. was mostly committed to low tariffs, many domestic manufacturers integrated parts and materials from other countries into their production processes. They would face higher costs and some adjustments. Regionally, coastal areas without much manufacturing would suffer, particularly port cities. Coastal elites would see their taxes go down a lot, of course.
Tariffs are going to be great business for one highly specialized industry: lobbyists. Just as a complex income tax is a lobbyist’s best friend, a high tariff system is Christmas all year on K Street. Have a business that needs to get a certain widget imported from Malaysia at a reduced rate? Need to get your coffee from Ethiopia brought in at 5 percent next year?
Foreign countries will also be lobbying for exemptions. Why should Israeli goods pay 20 percent, don’t we love them? What about Ireland? Lobbyists, get ready for business trips abroad if we get a tariff, so you can pitch your mastery of Congress from Kuala Lumpur to Rio.
And once the carve-out is granted, it will need to be defended annually. That’s how tariffs worked in America’s past, and they would almost certainly be at least as filled with holes and side deals in the future.
I don’t think Trump himself has realized how profitable high tariffs can be for politicians or political parties, but it would take just a New York minute for him to see the grift when it arrives. If you think a tariff system would operate without special side deals for connected businesses and countries, you haven’t spent enough time in Washington. Or reading American history.
And there’s one other thing that tariffs will inevitably do. They will put America on the side, at least temporarily, of economic nationalism. This country, which more than any other built the free-trading system of the postwar era, would be the nation bringing back the 1930s, when each country was only out for itself economically.
Maybe that would work out better this time than it did the last time?
Jeremy D. Mayer is an associate professor of policy and government at George Mason University, and coauthor of “The Changing Political South.”