Import sales taxes don’t make us richer
One thing to always keep in mind about our trade battles is this: Tariff is another word for “sales tax.” When you hear of a 25% tariff on steel, translate that into a 25% sales tax on steel. That clarifies the issue. Hitting American businesses and consumers with a slew of new sales taxes on their products, materials and everyday items, such as kids’ clothes, hurts them. To say exporting countries will feel more pain than we do doesn’t negate the truth: We will also be hurt. If deals are not struck, our exporters—particularly farmers—will feel the sting of retaliation. So will our companies that have facilities overseas. How many Buicks or Apple products will be sold in China next year?
Another thing to keep in mind: Even if particular companies or industries aren’t directly involved in international trade, their prospects will be affected. They aren’t isolated from buyers, suppliers and financiers who are more directly involved. Don’t underestimate the ripple effect. Look at the 1930s. Most American enterprises weren’t exporters or importers, but almost all were hit hard when the Smoot-hawley Tariff Act of 1929–30 ended up crippling the global trade and financial system and triggered a devastating economic contraction.
Since the end of WWII, we and much of the rest of the world have been gradually reducing tariffs and other trade barriers, and we have all benefited from this process. Again, look at the 1930s to see the alternative.
To sit down and negotiate, say, a free trade agreement with the EU, the U.K. or Japan would be terrific. Ditto updating Nafta. The reason we don’t instantly get a free-trade utopia, in which there are no tariffs or other barriers anywhere, is because every country has powerful political constituencies. Ask Canada about our unwillingness to let it freely export softwood lumber and other forest products to the U.S.
The U.S. has indeed been the best of the bunch when it comes to freer trade. Perhaps unilaterally imposing sales taxes at the border, instead of through the traditional way of negotiating an agreement, will ultimately lead to better trade pacts. But we shouldn’t rule out the possibility that at the least some countries may conclude that, politically, honor comes before a deal.
In the meantime, even before the worst of the tariffs may or may not be imposed, all of this uncertainty will dampen investment. We have to fight Beijing’s trade abuses. But forging a united front with our allies rather than acting unilaterally would have yielded more fruit more quickly.
Another, more ominous factor should be considered as well. These U.s.-instigated trade fights with everyone will, if they persist, seriously fray and perhaps undermine our carefully constructed post-wwii alliances, which have led to the longest-running period without major wars and with growing global economic prosperity.
Because of governmental economic errors, the U.S. and its allies have had nearly a generation of subpar economic growth. Thanks to President Trump’s push for deregulation and the passage of a significant tax cut, the U.S. is finally starting to break out of this rut. If we experience a Reaganera-like expansion, other countries will—as they did in the wake of President Reagan’s successes—follow us and change some of their growth-stunting economic policies.
Bad policies on taxes, money and regulation were the key causes of our, as well as other nations’, stagnation.
A series of escalating trade wars will abort our recovery and lead to the kind of everyone-for-himself environment that pockmarked the 1930s. An increasingly chaotic world will damage all of us and strengthen the hands of authoritarian regimes, which are the enemies of democracy.