Today in Bad Ideas: a 5% Tariff

A trial balloon hopefully made of lead.

money-compassVia CNN:  Trump team floats tariffs

Two sources who represent business interests in Washington tell CNN that the man in line to be White House chief of staff, Reince Preibus, has told key Washington players that one idea being debated internally is a 5% tariff on imports.
These sources, who spoke on condition of anonymity because the conversations with the Trump team were arranged as confidential, said the reaction was one of fierce opposition. Priebus, the sources said, was warned such a move could start trade wars, anger allies, and also hurt the new administration’s effort to boost the rate of economic growth right out of the gate.

One of the sources said he viewed the idea as a trial balloon when first raised, and considered it dead on arrival given the strong reaction in the business community — and the known opposition to such protectionist ideas among the GOP congressional leadership.

One should not make too much of ideas floated in meetings, but since the president-elect had made noise about such actions, it is worth remembering what a terrible idea this is. Keep in mind, for example, that the purpose of a tariff of this type is to increase the cost of foreign goods so as to make domestic goods relatively cheaper.  In a simplistic world in which is easy to distinguish between domestic and foreign goods, this could, theoretically, boost the sale of domestic goods.  But, the world is not so simple.

A lot of what we buy is not domestically produced because labor costs abroad are far cheaper than domestic labor costs.  If you are not already aware, go look and see where your recent consumer good purchases were made.  From electr0nics to clothing, the costs of those purchases will go up with a tariff. Indeed, even a number of domestically produced items, such as certain automobiles sold by domestic companies use parts made aboard.  As such, even if one buys “American” in such a case, the cost will increase due to a tariff.
Now, one might say that all of this proves Trump’s point that not enough stuff in made in America, but the bottom line is that we exist in a global economy and that isn’t going away any time soon (really, it isn’t going away at all).  More imporatantly:  we all benefit from reduced costs of production since it means everything we buy is cheaper than it otherwise would have been.  If a Trump administration does increase tariffs, it will increase prices.

There is also the problem that increased tariffs by the US will lead to retaliation by other countries who will likewise seek to impose tariffs on US exports, which in turn will damage US businesses.

This is not a recipe for economic growth, nor a recipe to return certain manufacturing jobs to the US.  Rather, this is a tax on comsumer goods that would be brought to us by the party of alleged low taxation.  And, of course, these would be tax burdens shouldered disproportionately by lower and middle class consumers.  Indeed, the people most likely to be impacted by such price increases are those rural blue collar workers whom Trump is supposedly championing.

FILED UNDER: Campaign 2016, US Politics
Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is a Professor of Political Science and a College of Arts and Sciences Dean. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. al-Ameda says:

    This is not a recipe for economic growth, nor a recipe to return certain manufacturing jobs to the US. Rather, this is a tax on consumer goods that would be brought to us by the party of alleged low taxation. And, of course, these would be tax burdens shouldered disproportionately by lower and middle class consumers. Indeed, the people most likely to be impacted by such price increases are those rural blue collar workers whom Trump is supposedly championing.

    Dead on, Steven
    I’m a strong free trade Democrat, however it is depressing to seem so many Republicans and Democrats walking away from free trade. It is kind of ironic that growing opposition to free trade is becoming an item of bipartisan agreement.

  2. Just 'nutha ig'rant cracker says:

    Yeah, but it is the type of thing that angry, out-of-work blue collar types talk about as the solution when they don’t think the solution is “keeping wetbacks from taking our jobs.”

  3. Mikey says:

    Indeed, the people most likely to be impacted by such price increases are those rural blue collar workers whom Trump is supposedly championing.

    Trump is someone who uses people and discards them when they are no longer useful. He conned the white working class into voting for him, and now that he’s won, he doesn’t need them anymore. So he’ll do stuff that hurts them–tariffs, allowing the gutting of Social Security, filling his administration with mega-rich financiers and Goldman Sachs alums, and all the other terrible ideas he’s come up with so far.

    And it won’t hurt him a bit, because even after economic growth tanks and unemployment spikes and poverty balloons, they won’t blame him. They’ll just blame Obama.

  4. CSK says:

    @Mikey:

    An important point here is that angry Trumpkins don’t distinguish between Republicans and Democrats; they refer to them as “the uniparty.” For them, there’s Trump and…everyone else. Only Trump can rescue them.

    They hate Ryan and McConnell even more than they hate Obama.

  5. barbintheboonies says:

    Why is everyone speculating things will all just fall apart if Trump tries anything. If you want him to fail as president, and you want to replace him let him fall on his face. As you said only the angry out of work blue collar workers, and the poverty buffoons will pay the consequences. They are used to being fvked, they`ll survive.

  6. Pch101 says:

    I would dismiss this as yet another PR-driven nothingburger.

    The US already has tariffs on many items. (For example, since you mentioned clothing, many clothing items are subject to tariffs ranging between 5.6-28.2%.) There are many instances in which a 5% tariff would reduce the tariff rate, not increase it.

  7. @barbintheboonies: Because some ideas are bad ideas.

    @Pch101: I took it as a blanket rise, rather than a reduction. Trump has run on raising tariffs But yes: at this point, nothing more than chit-chat.

  8. Pch101 says:

    @Steven L. Taylor:

    I took it as a comment that was based upon the inaccurate presumption that the US has no tariffs, when it actually has plenty of them. (Then again, so does everyone else.)

    It’s playing on perceptions of tariff rates, rather than the reality. This would be akin to fighting for a $5 minimum wage when it is already higher than that, except this is a safer gambit because few Americans have any knowledge of the current tariff schedule.

  9. @Pch101: That well could be the case.

  10. Guarneri says:

    Every philosophical and academic bone in my body tells me you are correct. However, a now years long running debate at Schulers place yields some issues for thought. The punch lines are 1) that it is not clear that our current trade posture is optimized; perhaps too free in one direction, causing the argument to be that foreign countries are subsidizing our consumers so who cares and the displaced workers be damned; but maybe there is room for us to tighten up trade terms short of igniting a trade war because it’s still a good deal for the Chinese et al and 2) the pace of globalization is too rapid for worker transitions and adaptation to take place without undo harm.

    Make no mistake, Luddite anti-progress arguments and “foreign steel steals jobs” (heh, I worked in the steel industry many moons ago) trade complaints have no place. But I’m not sure current debates are as simple and black and white as they are made out to be.

  11. Guarneri says:

    @barbintheboonies:

    It’s in their nature.

  12. grumpy realist says:

    Actually, it’s 10%, not 5%.

    This may simply be Trump’s standard negotiation tactics (ask for the unreasonable, then back off), but I can’t help but remember how the imposition of a 5% sales tax in Japan squashed the slowly recovering economy like a lead brick on a souffle.

    Add to that Trump’s chest thumping about firing the nuclear arms race up again and it’s going to be an interesting four years.

  13. grumpy realist says:

    @barbintheboonies: Oh, we’re perfectly happy to watch Trump fall flat on his face. We’re speculating because we want to be prudent and plan for the future.

    I’m already planning certain actions with my portfolio because I know that at some point we’re going to have a stock market crash–probably when everyone realizes that Trump’s grandiose plans for $1T investment into infrastructure aren’t going to happen.

  14. KM says:

    @barbintheboonies:

    As you said only the angry out of work blue collar workers, and the poverty buffoons will pay the consequences. They are used to being fvked, they`ll survive.

    If you don’t have a pot to piss in, 5% more on everything is a BFD so no, they won’t survive as well as you think. If the choice is between food and rent, you can’t afford a hike on the necessary things. At some point, being scrappy isn’t enough to sustain life.

    And if they are OK with life being made worse simply because it feeds into the pity party Rural America is throwing and we “need to give Trump a chance”, then they should quit whining and take their fvking like a man. They’ll survive after all.

  15. Gustopher says:

    @barbintheboonies:

    As you said only the angry out of work blue collar workers, and the poverty buffoons will pay the consequences. They are used to being fvked, they`ll survive.

    It turns out that most people — even most people on the left — do not want other people to suffer. There is this thing called “empathy”, and when mixed with the morbid fascination that makes you look at at car wreck, and good old fashioned spite, creates a heady brew of morbid speculation.

  16. C. Clavin says:

    @Guarneri:
    Look at Guarneri puckering up for the Cheeto-Jesus.

    I used to believe this, but then I voted for Trump…so whatever he says is gold-played.

    Principles? What principles?

  17. Gustopher says:

    In a better world, this would be the worst idea the President Elect announced that week. Or even that day.

    His desire for a new nuclear arms race is a shockingly bad idea.

  18. wr says:

    @barbintheboonies: “Why is everyone speculating things will all just fall apart if Trump tries anything.”

    Because some people know things about this crazy subject called “history,” which is the study of thing that happened before yesterday. We know what has happened in the past when other people did the same things that Trump is calling for, and we can see a great probability of the same things or worse happening this time.

    I realize that your awareness of the world is so slight you can’t tell the difference between the Republican platform and the Democratic. But maybe instead of simply expressing confusion at the mystery of the way the world works you could pick up a book and start to educate yourself. Or take a civics class at a local community college.

    If you do not have the knowledge to understand how the world works, the world is not going to slow down to let you catch up. It’s entirely up to you.

  19. Guarneri says:

    @C. Clavin:

    Having a bad month and a half, Cliff? Reduced to whining like an old woman?

    Rinse, lather and repeat.

  20. wr says:

    @Guarneri: “Every philosophical and academic bone in my body ”

    Thanks for that. First big laugh of the day.

  21. KM says:

    @Gustopher:

    His desire for a new nuclear arms race is a shockingly bad idea.

    America was informed Trump had issues with nukes ahead of time. The only morbid consolation for liberals would be they’re more like to die quickly in a first strike (living in target-rich areas) while Trumpkins who voted for the moron get to die slowly and contemplate their stupidity as the poisoned food runs out and the radiation-caused cancer racks their bones in a dying world.

    I probably won’t be around to say I Told You So but am bitter enough to wish them all the misery they deserve for giving an short-tempered, thin-skinned pissant the ability to end the world.

  22. @Guarneri:

    that it is not clear that our current trade posture is optimized

    This is, of course, fair. The problem is, I do not get the sense that a Trump administration is seeking to rationally determine optimal trade policy. Rather, I see reckless, ham-fisted arguments.

  23. I also see the potentially reckless disruptions of existing trade deals.

  24. Guarneri says:

    @wr:

    You’ve got a bit of catching up to do, I’ve been laughing ever since November 8th. Apparently unlike you, and a certain H Clinton.

  25. Guarneri says:

    @Steven L. Taylor:

    Only time will tell, and you may be correct. But I’m sure you understand the difference between public posturing and real policymaking. I find the handwringing to be pure idle speculation at this point.

    More broadly, I’m fascinated by the threads here, media accounts and opposition politicians/critics that only amount to red faced, clenched fisted air punching with claims of “you just wait and see man, Trump will (fill in your favorite ax to grind).” Amusing.

  26. michael reynolds says:

    Every philosophical and academic bone in my body

    Come on, that was good, and I needed a laugh. Guarneri has never been capable of thinking that extends beyond Me, Me, Me. I guess narcissism and greed are a philosophy now.

  27. Gustopher says:

    @KM: Even assuming Trump doesn’t launch a first strike because he gets into a twitter fight with a 14 year old claiming to be ISIS, maintaining command and control on a nuclear force is hard — with the consequences of failure being massive.

    The US is in a better spot than most to do it (not great, not even good, but better than most). The other countries? Not as good…

    The more nuclear weapons, the likelier it is that one or more will get loose. Either accidental explosions, or terrorists, or a military commander overstepping his authority. And then, there is a very good chance that everything escalates badly.

  28. wr says:

    @Guarneri: “You’ve got a bit of catching up to do, I’ve been laughing ever since November 8th”

    That’s okay. I’ve been laughing since the first time you claimed you bought and sold companies. Or that you knew anything about economics…

  29. Guarneri says:

    @michael reynolds:

    Perhaps you would like to,provide some specific quotes of mine.

  30. Guarneri says:

    @wr:

    Denial is a bad trait. Unfortunately for you, I’ve been doing it for 25 years, including a couple companies you would have heard of.

  31. C. Clavin says:

    @michael reynolds:

    Guarneri has never been capable of thinking that extends beyond Me, Me, Me.

    FTFY

  32. grumpy realist says:

    @KM: I’m wondering if getting us into a nuclear war (with NYC as an obvious target) isn’t Trump’s unconscious wanting final revenge at all the snooty upper-crust New Yorkers who never quite accepted him.

    You think I’m joking? Look at what George W. Bush got us into because he had Daddy issues.

    And Yeah, I do have the morbid consolation that if all hell breaks loose, I will be one of the first to go, working right here in downtown Chicago.

    For we will all go together when we go.

  33. MBunge says:

    Do you ever wonder why citizens of dying or declining civilizations fail to halt, let alone reverse, the destruction of their society? This comment thread is a good demonstration.

    The global economy project nearly went hooves up less than a decade ago and has been sputtering alone ever since like a POS car you desperately hope doesn’t strand you in the middle of nowhere. Yet even people who would agree that there are real problems balk whenever someone proposes a fundamental change.

    Would a 5% tariff be a wonderful, good, bad or terrible idea? I sure don’t know enough about economics to say…and neither do most of you. I am just barely smart enough, however, to understand that the economic policies governing the United States and the world are just that. Policies. They are not laws of freakin’ nature. They are policies that were designed in response to certain economic conditions and to achieve certain economic results. If the underlying economic conditions have changed or those results are not being achieved, then it is time to look for some new policies.

    Mike

  34. Just 'nutha ig'rant cracker says:

    @Mikey:

    They’ll just blame Obama.

    Yeah, I can hear El Rushbo even now:

    Obama and the Clinton Crime Cartel tanked the economy so badly that not even Trump the most successful entrepreneur in the history of the world could bring it back.

  35. Just 'nutha ig'rant cracker says:

    @grumpy realist:

    Trump’s grandiose plans for $1T investment into infrastructure aren’t going to happen.

    You mean the “how would you like to own your very own bridge” plan?

  36. grumpy realist says:

    @MBunge: Yes, there’s “looking for new policies”, but there’s also “above all, do no harm.” Somehow I don’t think having a nuke explode over my head falls into that category.

    But hey, Brownback is suggesting to Trump that he do to the US what Brownback did to Kansas with the tax rates. He’s absolutely SURE that it will work this time!

  37. @MBunge:

    If the underlying economic conditions have changed or those results are not being achieved, then it is time to look for some new policies.

    I would not disagree with that.

    But, apart from your Cassandra routine without any details, I am really not sure what your point is.

  38. Mikey says:

    @Steven L. Taylor:

    But, apart from your Cassandra routine without any details, I am really not sure what your point is.

    Smug superiority is its own point.

  39. Just 'nutha ig'rant cracker says:

    @michael reynolds: Narcissism and greed have been philosophies before (see Rand, Ayn among others); why should that have changed?

  40. @Steven L. Taylor:

    I would not disagree with that.

    Let me expand: I would agree that if underlying economic conditions have changed, then new policies are warranted. First, I am not sure if the premise is correct and second, if changes are needed, then we need a far more deliberative approach that what we have seen from the Trump campaign and transition team to date.

    And seriously: if you (MBunge) could start provided some kind of details in your critiques, it would be really helpful.

  41. @Mikey: That does seem to be the case.

  42. gVOR08 says:

    Tariffs are not universally bad. The American System worked well for us when we were playing catch up. Of course we aren’t anymore.

    It is wrong to discuss this as “free trade”. Economists pretty universally recognize free trade as a good thing. Trade agreements may or may not have much to do with free trade. Something of an exaggeration but I saw someone describe trade agreements as mostly being about the rights of Hollywood and software companies. Globalization is not really a political thing, once we invented the internet and the container ship, we pretty much had globalization.

    The real issue we should be discussing is that while free trade is good for countries, it is not good for everyone in the country. There are huge redistribution effects. And let’s not pretend we don’t know that. Besides intellectual property the big point to trade agreements is cheaper labor. Is there any reason the people who benefit from trade agreements shouldn’t be taxed to compensate those who are hurt? And it’s going to get worse. Artificial Intelligence is going to replace a lot more workers. We really need to be planning for a nation with a lot less work, maybe considering something as radical as a guaranteed minimum income.

  43. @gVOR08: I think you raise some vary valid points.

    I just take any suggestion from the incoming administration as a crude response to a complex problem. I may yet be proven wrong and they may shock me with their measured approach to the issue.

    But to you automation point: even if the Trump administration can force companies to stay in the US, their incentives are going to be for automation, not paying workers more.

  44. Dave Schuler says:

    To place the larger issue of trade in a little more context it might be useful to look at the National Trade Estimates for 2015, a breakdown by trading partner of the barriers to trade faced by U. S. products in other countries. They’re vast.

    I support free trade but what we have now doesn’t remotely resemble free trade. We have a system that picks winners and losers. Winners under our system include pharmaceutical companies, motion picture companies, banks, and physicians. Losers include steelworkers and farmworkers.

    Before we write off the possibility of increasing the number of jobs that don’t require PhDs or professional degrees, we might want to think of changing our policies to stop favoring some workers at the expense of others.

    Is an across-the-board 5% tariff a good idea? No. For some trading partners we should have no tariffs. For others a 45% tariff would just be reciprocity.

  45. @Dave Schuler: All fair observations.

  46. Stormy Dragon says:

    Interesting litmus test for the new administration:

    ‘It’s a hassle’: Pennsylvania driver’s licenses will soon not be accepted to fly domestic

    The Republican controlled Pennsylvania state legislature passed a law roughly a decade ago banning the state from complying with the REALID Act. The DHS revoked their waiver in October, which means that on January 22, no one in the state will be able to get on airplane with their driver’s license.

    What’s Trump going to do about this?

  47. HarvardLaw92 says:

    @KM:

    The only morbid consolation for liberals would be they’re more like to die quickly in a first strike (living in target-rich areas) while Trumpkins who voted for the moron get to die slowly and contemplate their stupidity as the poisoned food runs out and the radiation-caused cancer racks their bones in a dying world.

    Not entirely in agreement. The first target that any nuclear power would aim for in a strike would be our own missiles (in order to minimize retaliatory options as much as possible), which means that folks in Wyoming, North Dakota, Montana, Missouri and Louisiana will be having a particularly bad day.

  48. Jim Brown 32 says:

    @HarvardLaw92: Actually, almost every country with a intercontinental nuclear arsenal could fire off 10% of its stockpiles and simultaneously destroy the landed US missile facilities and US political, logistics, and economic centers. That would certainly include New York, Chicago, Boston, Miami, LA, DC, and Northern Virginia on a short list. No country would assume they would get the chance to launch a “second strike” so you could assume they’d empty the silos until our missiles reached them. Lets just say you’d want to be in the reddest county of the reddest State if you wanted to try to survive in that scenario. Mutually Assured Destruction is still the most likely outcome of a nuclear shooting war which puts the probability of one occurring near zero

  49. Just 'nutha ig'rant cracker says:

    @Jim Brown 32: I would be more comforted by your assurances about MAD if we hadn’t elected a President who apparently can’t figure out “why can’t we just use nukes” on his own; In any event, it would be better to die in the nuclear holocaust than to live in the reddest county of the reddest state. Nuclear winter will effect the remnants equally regardless of comparative state coloration.

  50. Jim Brown 32 says:

    This thread is a prime example of what pisses me off about Democrats: They acknowledge that the current system has created sensational winners and lots of losers. They rail on about the 1% and greedy corporations–yet they defend the very system of rules that created these imbalances and incentives. Economies are not birthed by the the laws of nature folks–they are man-made laws engineered to achieve real-world outcomes. The real truth is that economies have so many variables that no one prescription is going to be a miracle cure–and frankly–no one will be able to say with certainty what the effects of new policy prescriptions are going to be. No different than Obamacare, we are going to have to do something and then adjust for effect later. “Do no harm” at this point means do nothing. I don’t believe we can do nothing any longer.

    Im certain automation will make alot of this discussion irrelevant but for now, just the appearance of doing something about trade deals is having a positive effects on people’s pysche which is foundational to a strong economy. While free-trade looks good on paper from a bean-counters perspective–its not passing the human-factors test. The psychological effect of people working stable jobs so as to provide for and nurture families has a value–in my opinion a value beyond low prices generated by the current system. Maybe tariffs will work, maybe they wont. Lets prove it one way or the other and move on to the next thing. We’d never have a President Chump if the Main Street economy was strong.

  51. barbintheboonies says:

    @KM: I thought that is what I said I just copied the post from above me of what they called the blue collar people. You never gave a damn about them before the election, so why do you care now?

  52. Pch101 says:

    @Mikey:

    A superior attitude without the actual superiority to accompany it is just tedious.

    “Bunge is dumb, therefore you must be, too” has got to be one of the most ridiculous assertions that I’ve seen in awhile.

  53. @Pch101: I don’t see him saying that–am I missing something?

  54. Pch101 says:

    @Steven L. Taylor:

    Bunge said, “Would a 5% tariff be a wonderful, good, bad or terrible idea? I sure don’t know enough about economics to say…and neither do most of you.”

    He should speak for himself. Some of us have taken graduate-level econ.

    In any case, we’ve had high tariff regimes before on this planet, so it’s not as if there is some lack of data or experience with them. The notion that no one else could possibly know because Bunge doesn’t is laughable.

  55. @Pch101: Indeed. I was trying to figure out which comment by Mikey you were replying to.

  56. @Jim Brown 32: I think it is possible to think that a) not all past economic policies were good, b) we need approaches to deal with poverty-stricken areas of the US, and c) a new blanket tariff is not a good idea, especially for the aforementioned poor.

  57. rachel says:

    Does anybody know whether there is evidence the Hawley–Smoot Act (1930) improved the US economy? The history of subsequent events suggests not.

  58. Ben Wolf says:

    @Steven L. Taylor: Existing deals since NAFTA are not trade deals. They’re agreements to protect specific industries, professions and profits from competition while exposong everyone else. What Trump ought to do is renegotiate to expose white-collar professionals to the same foreign competition as manufacturing workers rather than continuing a decades-long policy of sheltering them at blue-collar expense.

  59. @Ben Wolf: For that sake of discussion, I will stipulate to your characterization for the moment and state: I have a very hard time seeing Trump doing what you are suggesting.

  60. Ben Wolf says:

    @Steven L. Taylor: Oh, I’m in complete agreement with you. Trump’s team appears to have no strategy for achieving a more nationally beneficial trade arrangement beyond playing hardball and hoping it all falls into place. There’s no awareness on their part trade itself isn’t the problem but our refusal to address the negative consequences that accompany these policies and the process through which the benefits are reserved for particular classes and interests.

    But a lot of Americans think the U.S. has been taken advantage of by other countries and may be willing to tolerate some economic disruption if Trump successfully sells tariffs and other measures as “standing up for ourselves.” If this is accompanied by large stimulative spending the shock will be buffered (though what his people are describing is less infrastructure stimulus and more a transfer of taxation from hedge funds to everyone else.)

  61. Barry says:

    @HarvardLaw92: “…which means that folks in Wyoming, North Dakota, Montana, Missouri and Louisiana will be having a particularly bad day.”

    Yes, but they’d be surface and sub-surface blasts. Those minimize the above ground blast radius, and increase the fallout quite a bit. I saw the old estimated radiation dose maps from the 1980’s. the Plain States are all in the ‘die even if in shelter’ levels.

  62. Barry says:

    @Ben Wolf: “What Trump ought to do is renegotiate to expose white-collar professionals to the same foreign competition as manufacturing workers rather than continuing a decades-long policy of sheltering them at blue-collar expense.”

    Since Trump voters are more likely to be above average income earners, that’d hit them hard.