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Tariffs

5 min read

Part of Markets and money.

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Every episode (3)

Who argued it

Casey Mulligan · Don Boudreau · Richard Epstein

Obamacare · Immigration Reform · Trump Administration · Donald Trump · Comparative Advantage

Background

Tariffs as taxes on American buyers

In the episode “Trump’s War on Trade,” Bob Zadek framed a tariff as a cost the United States government adds to an imported product to make it less desirable to Americans, so that they buy the now less expensive American product instead. He said tariffs are a tax on American buyers, taxing Americans for exercising their free choice of buying a Chinese product. He put the defense of tariffs as a short-term tactic to force renegotiation of trade treaties, and noted that anything the government does is temporary quickly becomes permanent. Trump’s War on Trade (2019)

Guest Don Boudreau responded that the claim that tariffs make trade freer in the long run has problems. He said you can imagine a situation in which when Uncle Sam raises his tariffs, foreign governments lower theirs, but that it never works in reality, and that history knows only a tiny handful of such situations. By far what happens, he said, is that the foreign country raises its tariffs in retaliation, which is what he saw happening in the current situation. He called Trump a mercantilist who wants America to export as much as possible and import as little as possible, which he said is the way to make America poor and not to make America rich. Trump’s War on Trade (2019)

Currency manipulation and the “country-wide sale”

In the same episode, Zadek called currency manipulation a misleading phrase, and said that when China manipulates its currency downward vis-a-vis the dollar, everything Americans buy from China gets cheaper. He compared it to a storewide sale, and to China saying every product is 10 percent off. Boudreau agreed, saying that almost all currencies are issued by central banks whose purpose is to manipulate the money supply, so for one government to accuse another of currency manipulation is hypocritical. He said if the Chinese government keeps the value of Chinese currency artificially low compared to the dollar, Americans get more for their dollars, and that is good. Trump’s War on Trade (2019)

The “tariff man” and the Reagan comparison

In “You’re Hired! Chief Economic Adviser to Trump,” Zadek said he was pained by Trump identifying himself as the “tariff man,” and asked why the president would tax American consumers merely because of their choice to buy something made in a foreign country. Guest Casey Mulligan said Ronald Reagan could explain better than anyone, including Milton Friedman, why free international trade is a good thing, but that Reagan did not practice it. He said Reagan used mainly a quota arrangement telling Japanese car companies there was a limit on how many cars they could send, and that the Japanese companies loved it because then they did not compete with each other for space in the American market. You’re Hired! Chief Economic Adviser to Trump on What It’s Really Like to Work in the White House (2020)

Mulligan said Trump did very few quotas and used tariffs instead, so the consumer paid more and the domestic producer was happy, but at least the money went into the Treasury rather than to Chinese companies, which he called an improvement. He said Milton Friedman wrote in the Wall Street Journal in the ’80s that Reagan was so bad with quotas that it would be an improvement to have a tariff man. He said there would be no tariffs if the swamp were totally drained, but the swamp is not drained and there are interests that have to be served, naming the car companies as a powerful interest. You’re Hired! Chief Economic Adviser to Trump on What It’s Really Like to Work in the White House (2020)

Industrial policy and steel tariffs

In “Rethinking Industrial Policy,” guest Scott Lincicome defined industrial policy as the government picking winners and losers in the market, focused on manufacturing, using targeted and directed microeconomic support such as firm-specific or industry-specific measures. He contrasted imposing tariffs to protect the steel industry with eliminating corporate taxes, which he called broad and horizontal and applying to everybody pretty equally. He said the government claims to be fixing market failures and trying to achieve market-beating outcomes within national borders, with an express protectionist element. Rethinking Industrial Policy (2022)

Across episodes: the same critique, no development

Tariffs are discussed in “Trump Vs. Free Trade with Richard Epstein,” “Trump’s War on Trade,” “You’re Hired! Chief Economic Adviser to Trump,” “The Radio Right and The Fairness Doctrine,” and “Rethinking Industrial Policy.” The episodes show no development in the argument across the episodes: the same critique — that tariffs tax American consumers, invite retaliation, and serve special interests — is advanced by Boudreau, Mulligan, and Lincicome, while Zadek supplies the framing in each conversation. The one historical variation the episodes supply is Paul Matzko’s account of the Great Polish Ham Boycott, in which he said JFK had been given the power by Congress to raise or lower tariffs in the name of national security, the same power he said Donald Trump used to raise tariffs on lumber from Canada and on steel and aluminum from East Asia. The Radio Right and The Fairness Doctrine (2021)

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