What is it About Tariffs that We Don’t Understand?

They’re Not that Complicated, but We Seem to be Willing to “Buy” Trump’s Lies about them, to our Peril.

Oct 08, 2024

Yet Another Warning Sign Keeps Flashing!

What is that warning sign, you ask? It’s the warning sign that flashes as we continue to hear nothing but lies from the Republican presidential candidate Donald Trump about his only real economic plan for a potential second term. What is his economic plan, you ask? It consists of imposing tariffs “out the wazoo”(pardon the technical talk) on many more imported goods into America.

Why aren’t more Americans literally screaming in outrage over this so-called Trump economic plan? There are two reasons. First, many Americans do not understand tariffs. Second, our poor collective civic literacy coupled with our poor historical literacy makes many unaware that United States’ history with tariffs, especially in the early 1930s, has been horrible. Poor historical knowledge damages our collective critical thinking, making us vulnerable to nonsense like Trump’s tariff plans.

The Institute for Citizens & Scholars’ former President Arthur Levine commented, “Knowledge of the history is fundamental to maintaining a democratic society, which is imperiled today.”[1] Stephen Dinan of The Washington Times commenting on these same survey results said, “…It’s probably lucky that most Americans are granted citizenship at birth- a new study suggested that they wouldn’t be able to pass the citizenship test if they had to…”[2] (emphasis mine)

What if the Stakes are Raised?

It’s bad enough when a former GOP presidential candidate (Nikki Haley) demonstrates she doesn’t know the cause of our Civil War.[3] But what if a candidate that actually attains elected office, and wants to attain it again, is historically illiterate and demonstrates repeatedly, they have no interest in improving their historical knowledge? What if that lack of historical knowledge by our leaders could affect over 330 million Americans’ lives in a direct and demonstrable manner with those leaders uninformed and uneducated policy decisions and lawmaking?

GOP presidential candidate (again) Donald Trump keeps hammering away ad nauseum at his idea of imposing new tariffs and existing tariff increases (i.e., a tax on imported goods), and that it’s “going to make us (the nation) rich”.[4] Most analysis indicates this would have a devastating impact on the U.S. economy and raise Americans’ cost of living by increasing rates of inflation over those that exist today. Plus, the “math doesn’t work.” Tariffs were a revenue source for the federal government when it was much smaller, but not anymore.[5] Presidential candidate Trump likely has not and would not examine U.S. history to gain an understanding as to what tariffs had or had not accomplished economically in the past. But what if he had? what would he have found?

Candidate Trump would find that tariffs haven’t work very well throughout our history. Tariffs have created more than their share of political and economic turbulence in American history.

The Tariff Act of 1828- A Civil War “Preview”

Our first big move on tariffs was the Tariff Act of 1828, which put in place the highest tariffs this country had seen. The driving force for Congress passing this tariff legislation followed Europe’s Napoleonic Wars with its blockade of Europe. This forced British manufacturers to flood the U.S. market with cheaper exports. Northeast U.S. manufacturers’ goods became price uncompetitive making them strong proponents of high import tariffs to protect their market. Conversely, Southern interests viewed these tariffs as an “abomination” because it increased the price of British goods imported by Southern markets. Southerners also believed these tariffs would reduce Britain’s ability to buy Southern cotton since the tariffs would reduce cash generated from American demand for British goods.[6]

The State of South Carolina called this the “Tariff of Abomination,” claimed it was unconstitutional, and set out to “nullify” it (spoiler alert- this was a Civil War “sneak preview”). It created a huge crisis over the federal government’s constitutional authority to impose these tariffs leading to conflict with then President Andrew Jackson. The conflict only dissipated with Jackson’s threat of military force against South Carolina to require it to collect these tariffs. Eventually political compromise did cool the crisis with the passage of the Tariff Act of 1833 which reduced the tariffs over time.[7]

But the Tariff Act of 1828 pales in its impact compared to the next big tariff move by the federal government.

Tariffs Circa 1930- How to Make a Depression a “Great Depression”

Let’s move from 1828 to 1930. The worst economic depression in U.S. history is now in full swing devastating the U.S. A priority of the federal government had become protecting American jobs and farmers from foreign competition. In response to this sentiment, Senator Reed Smoot (R-UT) and Congressman Willis C. Hawley (R-OR) introduced the Tariff Act of 1930, most often called the Smoot-Hawley Act (the Act). The Act raised U.S. tariffs on over 20,000 imported goods and enacted the second highest tariffs in U.S. history, exceeded only by the tariffs of 1828.[8]

While having some positive impact initially, economic historians’ consensus view is that the Smoot-Hawley tariffs worsened the effects of the Great Depression.[9] Even before the Act was signed into law, more than 1,000 economists urged (some even begged) President Hoover to veto it.[10] Canada and other nations, prompted by the Act and its retaliatory tariffs, were major factors in the reduction of American exports and imports by 67% during the Great Depression.[11]

The Smoot-Hawley tariff increases strained the economies of countries that were already suffering from the Great Depression as well as rebuilding costs resulting from World War I. Germany suffered greatly from this trade war as it was already struggling to repay war reparations to the U.S. and other nations that had been victorious in World War I.[12] Some believe this tariff induced trade war helped ease the way for the ascension to power in Germany of a guy named Adolf Hitler and his Nazi party.

Some said it turned the 1930s depression from just a depression into the Great Depression. Here’s proof of what these tariffs contributed to in U.S. in terms of economic performance during this period:[13]

· “…U.S. imports decreased 66% from $4.4 billion (1929) to $1.5 billion (1933), and exports decreased 61% from $5.4 billion to $2.1 billion.

· GNP fell from $103.1 billion in 1929 to $75.8 billion in 1931 and bottomed out at $55.6 billion in 1933.

· Imports from Europe decreased from a 1929 high of $1.3 billion to just $390 million during 1932, and U.S. exports to Europe decreased from $2.3 billion in 1929 to $784 million in 1932. Overall, world trade decreased by some 66% between 1929 and 1934.

· Unemployment was 8% in 1930 when the Smoot–Hawley Act was passed, but the new law failed to lower it. The rate jumped to 16% in 1931 and 25% in 1932–1933…”[14]

The Latest Tariff and Economic Impact Proposals

Knowing what we know about our tariff history, let us “fast forward” to today. While Trump used tariffs when he was president, especially against China, they are now looming even larger for America. According to historian Heather Cox Richardson, Donald Trump has proposed, given a second term, eliminating the federal income tax, and replacing it with revenue from across-the-board tariff increases. However, there is more. Trump “…has promised to slash taxes on the wealthy, increase tariffs across the board, and deport at least 11 million immigrant workers.”[15]

According to Richardson, “…Moody’s Analytics, which evaluates risk, performance, and financial modeling, compared the economic promises of President Joe Biden and presumptive Republican nominee Donald Trump…concluded that while a second Biden presidency would see cooling inflation and continued economic growth of 2.1%, a Trump presidency would be an economic disaster.”[16] (emphasis mine)

Richardson went on to report that Moody’s Analytics has determined:

“…these policies (i.e., of Trump’s) would trigger a recession by mid-2025. The economy would slow to an average growth of 1.3%. At the same time, tariffs and fewer immigrant workers would increase the costs of consumer goods. That inflation—reaching 3.6%—would result in 3.2 million fewer jobs and a higher unemployment rate. Trump’s proposed tariffs would not fully offset his tax cuts, adding trillions to the national debt. “[17] (emphasis mine)

Are We All Ready to Get on Board Trump’s “Economic Ship of Fools”?

It begs the earlier question, but we will ask it again a little differently. Did presidential candidate Trump examine the historical record first before making his tariff proposal? Did he have any economic analysis on its impact done before he made his proposal? Does he understand the “math” behind it? Is historical illiteracy in play here? The probable answers to these questions, in order, are- no, no, no, and yes.

Trump’s Economic Plan Isn’t a Plan

As Richardson says:

“…Trump’s call for tariffs is not an economic plan; it is a worldview. Trump claims that foreign countries pay tariff duties and thus putting new tariffs of 20% on all imports, and as much as 60% on Chinese imports, will bring enough foreign money into the country to fund things like childcare, end federal budget deficits, and pay for the tax cuts he wants to give to the wealthy and corporations.”[18]

Richardson goes on to describe Trump’s economic suicide plan as “…a deliberate lie. Tariffs are essentially taxes on imported products, and they are paid not by foreign countries but by American consumers. Economists warn that Trump’s tariff plan would cost a typical family an average of more than $2,600 a year, with poorer families hardest hit; spike inflation as high as 20%; result in 50,000 to 70,000 fewer jobs created each month; slow economic growth; and add about $5.8 trillion in deficits over ten years. It would tank an economy…”[19] (emphasis mine)

Trump Shows His Hand- His Real Agenda

Trump is basing his conclusions on one American president, William McKinley, who had a brief time in the late nineteenth century where tariffs were imposed that helped make some American businessmen very wealthy. We call it our “Gilded Age”.[20] But eventually after Smoot-Hawley failed in the 1930s during the Great Depression, according to Richardson, “…it took with it Americans’ faith that tariffs were the key to a strong economy. After World War II, ideological fights over the structure of the economy would be waged over taxes rather than tariffs.[21]

Speaking from a historical perspective, Richardson adds:

“…Trump’s insistence that a tariff wall will make America rich is not based in economics; indeed, it would destroy the current system, which is so strong that modern economists are marveling. Trump is fantasizing about a world without regulations or taxes, where high tariffs permit the wealthy to collude to raise prices on ordinary Americans and to use that money to live like kings while workers, farmers, and entrepreneurs barely scrape by… a world like McKinley’s.” (emphasis mine)[22]

More Proof that Trump’s Plan is Nuts

According to the non-partisan Tax Foundation tariffs, “…are taxes imposed by one country on goods or services imported from another country. Tariffs are ~~trade barriers~~ that raise prices and reduce available quantities of goods and services for US businesses and consumers. Tariffs are paid when a good or services is imported into a country…”[23]

According to Kent Jones, Professor Emeritus at Babson College, writing in The Hill, “…The “billions and billions” that would supposedly flow into the Treasury would not come from foreigners but from U.S. consumers. It would be a new national sales tax, imposed on U.S. citizens, and collected on every item imported into the country."[24] (emphasis mine) Jones adds, that the likely result will be:

“…increases in price levels, lower GDP and a possible recession — or worse — at home and abroad. Trump’s new tariff plan is the most extreme protectionist proposal since the Great Depression, a regressive sales tax that would reduce U.S. competitiveness and lower the nation’s standard of living. It would be an economic disaster.[25] (em phasis mine)

And let’s not forget Trump’s economic fiasco that he created as President with China for American soybean farmers when he placed tariffs on goods imported from China. According to Forbes:

“…During the Trump administration, Congress approved a $30 billion bailout for the U.S. agricultural sector to compensate farmers for the sharp decline in business they suffered when China enacted its own tariffs in response to U.S. tariffs.”[26] (emphasis mine)

And to boil it down to what everyone should know, Forbes makes it clear, saying:

“…The evidence is clear that U.S. consumers predominantly bear the burden.”[27] (emphasis mine)

Or are We Willing to be “Bamboozled” Again?

Truth be told, there is no “governance objective” here. We are being bamboozled by Trump and the MAGA GOP. As the late Carl Sagan explained:

“One of the saddest lessons of history is this: If we’ve been bamboozled long enough, we tend to reject any evidence of the bamboozle. We’re no longer interested in finding out the truth. The bamboozle has captured us. [28] (emphasis mine)

Are we willing to allow historical illiteracy to bamboozle us again? Or, in the words of the Who’s Pete Townsend, are we willing to say-

“…I’ll get on my knees and pray; we won’t get fooled again!”[29] (emphasis mine)

I choose the second option, not getting fooled again, as we were fooled in the first Trump administration. To achieve that, we must choose to know something about our history, the mistakes made with tariffs, learning from them, and not repeating them. This warning sign is flashing. Do we see it?

[1] Ibid, //woodrow.org/news/national-survey-finds-just-1-in-3-americans-would-pass-citizenship-test/

[2] “Most Americans Would Fail U.S. Citizenship Test, Study Finds,” by Stephen Dinan, The Washington Times, October 3, 2018, https://www.washingtontimes.com/news/2018/oct/3/most-americans-would-fail-citizenship-test-study/

[3] Presidential candidate Nikki Haley left out slavery when asked what caused the Civil War. Then she backtracked | PBS NewsHour, December 28, 2023, 11:45 AM EST.

[4] Trump Wants to Eliminate Income Taxes: Here’s What That Would Mean for the Economy and Your Wallet (yahoo.com)

[5] Trump Income Tax and Tariff Proposals: Details & Analysis (taxfoundation.org)

[6] Tariff of Abominations - Wikipedia

[7] Tariff of Abominations - Wikipedia

[8] Smoot–Hawley Tariff Act - Wikipedia

[9]Smoot–Hawley Tariff Act - Wikipedia

[10] What Is the Smoot-Hawley Tariff Act? History, Effect and Reaction (investopedia.com)

[11] Smoot–Hawley Tariff Act - Wikipedia

[12] What Is the Smoot-Hawley Tariff Act? History, Effect and Reaction (investopedia.com)

[13] Smoot–Hawley Tariff Act - Wikipedia

[14] Smoot–Hawley Tariff Act - Wikipedia