Tariffs Without Tears
Trump did make one solid point in the debate that Harris did not respond to. The Biden WH has not eliminated the tariffs that Trump instituted. In fact they have a few new ones. Evaluating the difference in their policies would take us into the weeds, and I’m not going there. Not my bailiwick.
Of course, it is idiotic to rant about inflation, not caused by Biden, nor something a president can fix, and simultaneously propose a 20 percent tariff. A more logical line of attack would be to rant about inflation, and demand that Biden roll back any existing tariffs. But then Trump would have to admit that one of his policies is not presently beneficial.
More broadly speaking, we should not get too excited about tariffs, as many mainstream economists do. There is a case for using them to protect domestic manufacturing. Is it easy to do, and is the benefit reliable? No.
It should be clear, however, that a tariff is indeed like a sales tax in its impact — it is borne by consumers downstream from whatever point in production it is instituted, including at the border. A key notion in public finance, my field, is that the party that pays a tax does not necessarily bear the burden of the tax. With an ordinary sales tax, for instance, it is obvious that you pay at the grocery checkout and the supermarket sends the money to the government. But there is also some marginal impact on reducing your purchases. You might use the savings to buy more of something else, but you are not as well off. That is also part of the burden.
Less obvious are taxes that you don’t literally pay yourself but that reduce your purchases of what is being taxed elsewhere in the supply chain. That’s the deal with a tariff. You buy something else, but there is a difference in welfare since it is not what you would have bought, absent the tax. Alternatively, instead of buying an imported good, you buy a domestic substitute. The latter will take advantage of the price increase on the import to some extent, and you pay more than you would have on the import. That’s a feature, not a bug. It is also the burden of the tax for you. It’s not as tangible or visible as most of the sales tax at the supermarket, but to most economists, including this one, it is real.
The other side of the argument about tariffs is the well-being of workers in affected industries. By discouraging imports, there is some potential gain for the favored industries. I believe this as well. So does the White House. That’s also why a batch of midwestern Democratic senators, including the saintly Sherrod Brown, are soft on Trump’s tariff talk. When asked about it, they get to explaining.
In general inflation hurts consumers more than workers. The latter’s wages are likely to track with price increases. It is consumers in the lowest income brackets whose ox is gored the most. We don’t care about the wealthy. This is not as much of a problem for anyone whose benefits, such as from Social Security or a pension, are indexed to inflation. A basic progressive tenet, certainly open to debate, is that limited inflation is not a bad thing for the working class.
For campaign purposes, a humongous 20 percent tariff is an inviting target, and I encourage everyone to keep beating away at it. Just don’t get high on your own supply. We will end up being obliged to defend President Harris’s tariffs.