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President Trump has established a baseline 10 percent tariff on nearly all imports. Additionally, the White House announced plans for reciprocal tariffs on 57 countries. A week later, on April 9, the administration then paused these reciprocal tariffs for 90 days.
We don’t know if the reciprocal tariffs will take effect after July 9. What is certain is that in addition to the 10% baseline tariff, there is a 25% tariff targets car imports and most goods from Canada and Mexico, and a staggering 125% tariff is in place on most Chinese imports.
Some of my conservative friends like to imply that tariffs are part of a cunning plan to eliminate the federal income tax. They point out that until 1913 America did not have a federal income tax, and the federal government was largely funded by tariffs.
Now I’m all in favor of eliminating income taxes, and I spent much of the last legislative session in Mississippi advocating for the repeal of our state income tax. But the numbers don’t add up for replacing the federal income tax with tariffs. To generate the $2.6 trillion annually that the income tax provides, tariffs would need to average 127% on all imports (even accounting for an estimated 20% drop in import volume). Do that and only rich folk will be able to shop at Walmart.
Others have told me that we need these tariffs to protect American industry against offshoring and the loss of American jobs overseas. Really?
US output today is close to three times higher than it was when LBJ was President. US factories make almost twice as much stuff as they did when Ronald Reagan left the White House. The growth in US industrial output happened while tariffs declined from 6-8 percent in 1969 to about 2 percent by 2010 (with a slight increase by 2020 due to higher tariffs on China).
It is true that the number of manufacturing jobs in America has fallen, as manufacturing output has risen. But that is because fewer workers in industry are able to make more. The same thing happened in farming a century before. The loss of farming or manufacturing jobs has not made Americans poorer. It means Americans went and found work in better paying jobs.
That’s why the total number of jobs in America has risen despite the fact that the proportion of Americans working in manufacturing has fallen. There were 70 million jobs in 1969 and there are 160 million jobs today. So much for free trade taking away our jobs.
“But what about China?” some say
America should be worried about China. It’s alarming that China’s Jiangnan Shipyard builds more ships in a single year than all U.S. shipyards combined. It’s concerning that China produces more drones in a day than the U.S. does in a year.
But if China is our primary concern, why hit countries like Vietnam, South Korea, and India—potential competitors to China—with crippling tariffs?
Tariffs won’t eliminate the federal income tax, reverse a supposed industrial decline, or solve the question of how to deal with an aggressive China. What they will do is make you poorer and America less competitive.
Consider your cell phone. Apple has already stated that tariffs will increase its costs by nearly $1 billion this quarter alone. That extra cost? It’s coming out of your pocket when you buy your next iPhone. To dodge new tariffs on Chinese goods, Apple is shifting much of its manufacturing from China to India. Don’t expect new iPhone factories in Mississippi or Michigan—think Madras instead.
Ironically, the high-value work on smart phone production—the design, software, and chips—is already done in the U.S. Tariffs will simply move low-value assembly from one Asian nation to another, leaving you to foot the bill.
My big fear this that tariffs won’t just be seen as having triggered an economic downturn. By doing so they will overshadow all those other conservative wins.
During my recent trip to Washington, several administration insiders suggested that the current tariff strategy is part of a broader plan. They claim tariffs are being used as leverage to dismantle restrictions on U.S. exports to other countries.
Whether or not this was the original intent, I hope it becomes the retrospective rationale. For instance, if a close ally like the UK, which runs a trade deficit with the U.S., agreed to eliminate all its tariffs and allow any product sold in America to be sold in the UK, the U.S. could respond in kind. Such a trade agreement with the UK could set a precedent, encouraging other allies—Japan, India, Australia—to follow suit. The result might be the complete removal of trade barriers between the U.S. and its allies. That’s the optimistic scenario. The alternative is higher costs for everyone, leaving us all poorer.
Douglas Carswell is the President and CEO of the Mississippi Center for Public Policy
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