Newsroom

Tariffs are taxes. They raise the prices of imported goods. Adam Smith (Wealth of Nations, 1775) taught us that, 250 years ago, and reminded us that it’s the “interested sophistry of merchants and manufacturers confounding the common sense of mankind,” to call into question the proposition that one should be able to buy what he/she wants from another at the lowest price.

We all end up paying the tariff taxes. Who gets the money? The federal government.

Virtually all economists agree that we all benefit from free trade. So, we all suffer when free trade is restricted by tariffs. We would expect the United States to be a beacon of free trade, as it has been for economic and political freedom. After all, a lot of tea went into Boston Harbor, when the British put tax stamps on it…taxing us without representation. That rhymes with presidential executive orders to tariff, without benefit of your and my input through Congress.

What if the trade is not free, even “unfair,” when another country subsidizes their products and competes unfairly with a domestic industry? What is unfair is the other country taxing ITS citizens one way or another to subsidize their production. Taxation can be exploitation of labor, of the environment, or the devaluation of currency by government debt…and the least fortunate suffer the most.

But, we actually benefit from foreign subsidies, because we are paying less: foreign subsidies are a handout to us! We have more money here at home to spend as we wish, explained Milton Friedman.

What if foreign subsidy “targets” domestic industry?  We should first look in the mirror: is our government making it harder than necessary to make goods at home?  Am I as productive as I can be?

Our company faces stiff foreign competition, here at home, and around the world. We must compete to serve, and not just with price, but also quality, features, innovation, delivery, and service. I call it PQFIDS. We all want to buy quality products from responsible suppliers at fair prices. Price is just ONE factor. What’s in the product? (A very important question when we consider cybersecurity!) Who made it? Can I get support? Will the supplier do something special for me? Is it safe? Do I trust them? We’re successful here at home, I believe, because we usually get those questions right. And, let’s face it: an imported product already has the expense of customs delays and transportation, and other logistical concerns.

Tariffs will make the costs of our products increase, as we do have some foreign content. We must absorb or share those additional costs. Either we or our customers will pay this federal tax. And eventually we will all pay more for electricity.

Our best and largest trade partners are Canada and Mexico.  We all benefit daily from NAFTA and the successor, which have been fostering free trade for decades now. We’ve become closer than ever, making it easier to resolve other problems.

What about counter-tariffs? Two wrongs don’t make a right. If China targets US auto production with tariffs (a project for State or Commerce), doesn’t it make sense for the US to tariff Chinese cars? NO! China unfairly taxing their citizens when they choose to buy a US car is NO reason for the US to tax you or me if we choose to buy Chinese. (I wouldn’t buy a Chinese car, because I feel I get a higher-quality better-supported car from, say, Ford…even though the manual transmission in it was probably designed by a German company which has it made in China for them for Ford for me. You may feel different. That’s economic and political freedom.)

We do not want sand in the gears of our economic and political freedom than we want sand in the gears of our car transmissions. Counter-tariffs, just like tariffs, increase what we all pay. The government takes the money from us all. It’s almost as hidden of a tax as inflation!

I’ve tried to imagine what a world of tariffs and counter-tariffs looks like. Imagine a world with three countries, A, B, and C. Draw a tic-tac-toe matrix with nine boxes. Label the columns and rows ABC. Call the columns the taxing countries, and the rows the taxed ones. The squares down the diagonal, AA BB CC, are cells with taxes country A places on itself, B on B, C on C. The six off-diagonal boxes are the tariffs A places on B; A on C; etc. These boxes are tariffs and counter-tariffs. Now extend it into three dimensions…one tic-tac-toe board for each product!

Let’s expand it to 100 countries, and 1000 products. That’s 10,000,000 tariffs and counter tariffs!...minus a few boxes down the diagonal. For any one country, it’s 20,000 to manage. If we allocate 10 products to one tariff manager, then we’d need 2,000 tariff managers, plus probably another 200 supervisors, plus buildings, computers, desks, etc. Counter-tariffing seems to be tit-for-tat, so this is dynamic…changing daily. 

Those 2,200 folks would need to package up their work, and send it out to every customs agent, who would have to try to understand it all. What’s in the box? What mix of products is it? What’s the tariff for each? You can see that the administration of tariffs by the federal government must necessarily EXPAND the federal government, all for no good end.

All this is sand in the gears of free enterprise at the expense of our economic and political freedom, the destruction of business relationships and investment, and iced with the frosting of new taxes. Adam Smith explained it 250 years ago. It didn’t work 105 years ago when Smoot and Hawley tried it. Milton Friedman taught us more not to do it. And it won’t work now.