Im­port sales taxes don’t make us richer.


“With all thy get­ting, get un­der­stand­ing”

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.

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