Tariffs and Fooling the Peasants

 

For American consumers, tariffs function effectively as a hidden sales tax they pay on goods produced in foreign countries and imported into the United States. They raise the prices of those goods above what they would have been otherwise. (Claims to the contrary by Trump and his supporters make no more sense than if some Texas politicians claimed that the eight and a quarter percent sales tax they lay on most things purchased in the state does not make those things more expensive to buy.) Increasing tariffs increases that tax, raising prices and contributing to price inflation. Years ago there was a cartoon in the Wizard of Id comic strip with the king and his henchmen plotting new taxes on the peasants. One suggested supplementing the income tax with an outgo tax. Another objected that not even peasants were dumb enough to go along with that, and so they decided to call it a sales tax. They could have gone for a tariff and hoped to fool the peasants into believing it would be paid by foreigners. That is pretty much what Trump is doing now.

The benefits of global trade are obvious both in economic theory and in the history of the eighty years since the end of World War II. Trump’s mercantilist notions on trade and tariffs have been refuted by economists from the time of Adam Smith to the present. Yet he and his gang plow ahead. He will cause discomfort in our country and probably real hardship in some countries where fairy open global markets have helped large numbers of people to rise out of real poverty. He will make people around the world angry and skeptical of the good will and good sense of the United States. The one place there is a good case for high tariffs and other restrictions on trade is with China. Economic dependency on hostile foreign powers is not beneficial, and China is one. But Trump seems to be going easier with China than with many others. It is a mess.