Tariffs
What are the “usual” purposes for tax on imports into a country – the “magic word” – tariff? Tariffs have three different functions. One is to raise money for the nation imposing the tax; a revenue tariff. These are common and often help cover the costs of border inspections and the infrastructure required for ports and shipping. At the beginning of the United States tariffs were a major source of Federal government income. In fact, Alexander Hamilton, the first Treasury Secretary, established a “navy” to help control imports, called the Coast Guard. They guarded against smuggling goods into the new nation.
The second reason for tariffs is to protect native manufacturing from “unfair” competition by foreign nations. So, for example, if soccer balls made in Afghanistan are sewed together by $2.00-a-day child laborers, and we don’t like child labor and folks working for slave wages, we could put a tax on those soccer balls to make then cost as much as if they were made in the USA. Then, US balls could fairly compete in the market with Afghanistan balls. Those are called Protective tariffs.
And finally, tariffs are used to drive other issues among nations. If, for example, we want China to stop allowing cheap fentanyl (illegally) imported to the US, we could use tariffs on Chinese goods to “punish” the Chinese. The same “cudgel” is applied to Mexico, because they aren’t “doing enough” to stop migrant traffic through their country to the US Border.
Liberation Day
But what President of the United States Donald Trump did on his so-called “Liberation Day”, April 2nd, 2025, was none of those things. Trump, avowedly, tried to re-set the world economic order, all in one fell swoop. He placed import tariffs against goods from almost every nation in the world, everything from Canadian fentanyl to Fiji water. It’s an economic policy that harkens back to the late 19th century, when international trade was limited to certain commodities and manufactured goods. Most agricultural products and “day-to-day” goods in that time were made at home.
Here in the United States it was the hey-day of the vast monopolies. Standard Oil (Rockefeller) controlled the petroleum industry and US Steel (Carnegie) controlled manufacturing and transport of steel. US Shoe (Stern), American Sugar Refining (Havemeyer – Domino Sugar), and the New York Central Railroad (Vanderbilt), all dominated their respective industries. As these “tycoons” maintained control of their areas, they certainly didn’t want competition from international providers. So they used their political power to institute tariffs to assure their hegemony over American goods.
Last Gasp
The monopolies were ultimately broken up by (Republican) Presidents Teddy Roosevelt and William Howard Taft. The United States moved to a more international trading model. The First World War generated even more trade, and the US was a major player by 1929, and the beginning of the world economic crash.
The last historic gasp of American tariff protectionism was in the depths of the Great Depression. The Smoot-Hawley Act tariffs of 1930 raised American imports tariff by 20% on almost every other country, with the idea that it would increase American employment. (Smoot-Hawley is now the third largest protective tariff in US History, along with Andrew Jackson’s tariff of 1828, and Trump’s actions this week). The problem was, that world retaliation ultimately reduced American exports 61% by 1933, deepening unemployment and the impact of the Depression.
Foreign Made
Today’s economic models are very different from the 1890’s, or even the 1920’s. Today, the United States is in a world economic market. They are few shoes manufactured in the country, not many T-shirts, almost no “minor” electronics (plugs and cords) made here today. All of those, along with those soccer balls, are made in places where labor costs are much lower. Not one item I’m wearing right now was made in the USA: LL Bean flannel shirt (Sri Lanka), Santa Barbara bar T-Shirt (Honduras), Sketchers shoes (Vietnam), Hanes underwear (Dominican Republic) and Land’s End blue jeans (China). Even my “reader” glasses are from China.
The United States participates in a world market. All of the tariffs instituted by the President results directly in increased prices to the American consumer. Conservatively, if the President’s tariffs remain in effect, it will cost the average family about $5000 a year more.
So tariffs are a tax. But the tax is paid by the consumer, not by the manufacturer, who reasonably passes the costs on. And, since there are few “Made in America” alternatives for many of these common goods, then it is Americans who will pay the cost of Mr. Trump’s “Liberation Day”.
Trump Tax Increase
The President just increased American taxes by $5000. And, reasonably, American companies that do export goods are waiting for “the other shoe (made in Cambodia) to drop”. Because if the US raises tariffs, other nations will respond with tariffs of their own on American goods. And they will likely cause overseas sales to go down. The stock market is reflecting that likelihood; it’s fallen by more than 5% just in the last two days. Americans with long-term investments, like retirement 401-k accounts, are seeing losses as well.
So what’s the point? Why does Mr. Trump want these tariff battles? Well, here’s my theory. First of all, the President expects an addition $3 to $5 Trillion dollars in tariff tax revenue to the US Government. That will fuel his desire to reduce income taxes. So the tariff taxes on everyone will offset a reduction of corporate and “rich people” income taxes. And, to be fair, maybe Trump will be able to come through with his “no tip tax” program. But the “no tip tax” savings would be more than offset by the increased (by the tariffs) costs on everyday goods.
Artificial Workers
The President came to this strategy, in part, by the authors of Project 2025. In this case, it might better be named Project 1925, because this is the policy of Herbert Hoover. And we all know where that ended up. It was called the “Great Depression”.
Trump wants America to be self-sufficient. If only we could make all of the cars, and car parts, back here in the good old USA. Then all of those 1950’s “working man” jobs would be back. And, frankly, if this tariff policy continued for the next couple of decades, that might well happen. Except for one major proviso.
Today’s manufacturing, particularly new manufacturing, is highly automated. The job of “tightening the third nut on the left wheel” as the car goes by on an assembly line doesn’t exist anymore. A robot does that, and new artificial intelligence is going to do even more. So even if those car manufacturing plants return to the USA, they won’t be employing Americans, at least, not human Americans. They might be employing robots, made by robots, here in America. But that won’t feed a family, even an artificial one.
