The Tariff Issue

This is because the Democrats, media, and ruling establishment want get rid of Trump. It is also important to understand that tariffs are not the only way to limit imports.  There are other means, such as quotas.  Quotas on imports into the US of Japanese cars were part of the US auto producers bailout negotiated in the final year of the Carter administration.

I will attempt to put the issue in a correct perspective.  It is not Trump’s intention, at least at the present time, to institutionalize a tariff regime.  Trump is using tariffs as a threat to secure agreements that he thinks are in America’s interests.  So far 50 countries have, according to reports, agreed to remove their tariffs on US goods.  The countries responding aggressively seem to be China and our European allies.  I explained yesterday how Trump could better have gone about his task.  Nevertheless, as the Commerce Secretary said, Trump’s tariffs are not expected to extend beyond a few weeks or a few months of negotiation.

During this time there could be supply disruptions.  Apparently, Trump is aware and has released an 11-page appendix that exempts all sorts of imported items that US producers require to continue their operations.  Whatever disruption does occur, should be small compared to the Covid lockdown supply disruption, the basic cause of the current inflation. The Covid disruption was pointless and counterproductive.  The tariff disruption, if there is one, is the cost of establishing a fair and uniform trading system.

So, Trump is not being arbitrary or on a rampage to destroy international trade. Tariff negotiations, especially with so many countries and products can go on for years.  Trump might think that he only has two years to get anything done before the Democrats steal the midterm elections and bring his renewal of America to a halt.

President Trump has spoken of tariffs in a wider and much more important context.  Over most of American history until the First World War, tariff revenues were the source of government revenues.  An income tax was unconstitutional and a violation of freedom.  The definition of a free person is a person who owns his own labor.  A slave does not own his own labor, and a serf only owns part of his labor.  A person required to pay an income tax does not own that part of his labor that he must provide to government in order to avoid imprisonment.  The difference between a medieval serf and an American taxpayer is the serf paid the tax in kind as hours worked, and the American pays the tax in money as a percentage of his income.

Classical economists, real economists  unlike the faux ones of today, understood that factors of production–labor and capital–should not be taxed, because the supply of both to the economy is reduced by taxation.  Supply-side economics is based on this principle. Thus, its emphasis on lowering the marginal rates of taxation. Reducing the supply of factors of production, reduces the economic growth rate and the national income.  The century that the US economy has labored under income tax has costs us substantially in lost income. The classical economists said that taxation should fall on consumption not on factors of production.

Traditionally, imported items are finished goods–German cars, French wines and perfumes. High priced goods are for the wealthy, so tariffs fall on the rich. The working class does not indulge in Porsche cars and Clicquot champagne. However, for about 30 years much of our imports have consisted of the offshored production of US firms.  When Apple, for example, brings its products made in China to the US to be marketed, they come in as imports and worsen the US trade deficit.  Instead of beating up on China, Trump should call the US corporations that offshore their production for US markets to a White House conference and point out to them the consequences of their policy:  the shrinkage of the American middle class, the loss of tax base, decaying infrastructure, and loss population of America’s former manufacturing cities, the pressure on city and state pension systems, the pressure of lower ratings on municipal bonds.  Trump should ask the executives if they went too far in maximizing profits that benefitted a relatively few at the expense of the many, and what they think they should do about it.  Capitalism ceases to serve the general interest when it separates Americans from the incomes associated with the production of the goods and services that they consume.

Trump has spoken of returning to tariffs as the source of government revenues and abandoning the income tax. This is consistent with correct economics and with freedom.  Such a change would be possibly the most important reform in American history.

It would be a difficult reform to achieve, because ideological, not economic, considerations intervene.  Taxing the rich became the agenda of mass democracy.  Taxing the rich was not seen as punishing a person for being successful.  A successful person was portrayed as having become rich by exploiting labor.  As fortunes were “stolen” by exploiting labor or resulted from government preference or legal privilege, income taxation was perceived as an instrument of justice. It is certainly perceived that way today by the liberal/left and the Democrat Party.

As an income tax is emotionally satisfying to the liberal/left, we are stuck with slower economic growth an less national income.

It is disturbing that the liberal/left agenda has made American politics so highly partisan.  What we see today is literal hatred of Trump, Republicans, conservatives, and white heterosexuals by the liberal/left.  Hatred makes democracy dysfunctional.  Politics cannot function as each side is intent on destroying any achievement by the other side.  As democracy ceases to function, dictatorship becomes the means of governance.  The liberal/left’s agenda to remake America by destroying its roots and recasting it into a different kind of society means the death of democracy and the rise of dictatorship.  This is our real problem.