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Trump on Tariffs: Consistent, and Consistently Wrong

May 22, 2019 in Economics

By Simon Lester

Simon Lester

Recently, a decades-old video of Donald Trump on
“Oprah” circulated, in which Trump offered up all the
same trade policy views he holds today: Our trading partners are
cheating us, bilateral trade deficits are hurting the U.S. economy,
U.S. negotiators have done a bad job with trade deals, and higher
tariffs would help the U.S. economy.

Politicians often get criticized for flip-flopping, as they
change their policy positions over time in an attempt to please
voters or interest groups. On tariffs, Donald Trump has not flipped
or flopped at all. As president, he is implementing the exact same
policies he has talked about for years. Unfortunately, they are bad
policies, based on a misreading of history and a misunderstanding
of economics.

Trump may be looking at U.S. tariff history in the following
way. In the 1800s, the United States had relatively high tariffs.
Also in the 1800s, the United States experienced strong economic
growth and industrialization. Therefore, tariffs always lead to a
good economy.

Many people —
inside and outside the administration — have explained to
Trump why he is wrong about tariffs and trade, but he does not want
to hear about it.

The reality is that economic cause and effect is much more
complicated. The telegraph also played a big role in the 1800s, but
bringing back the telegraph today would not be a boon to the
economy. In the 1800s, governments used tariffs as a primary source
of revenue. Administratively, it was easiest to collect taxes on
products as they entered a country, so for most countries tariffs
were a main source of government funding. However, over the years
governments found other alternatives, and tariffs as revenue became
less important.

Tariffs were also used to protect domestic industries. In this
way, they were the original “swamp” policy. The
Constitution gives Congress power of tariffs, and during this
period companies that wanted protection from foreign competition
would go to their member of Congress and ask them to push for
tariffs on the products of their competitors. An individual tariff
could cause harm to consumers in other districts, but all those
seeking protection would join forces: All the members looking for
protection would support each other’s tariff requests, so
that they could all deliver for the interest groups they
represented.

Of course, other groups were hurt by this: U.S. consumers, who
paid higher prices; and U.S. exporters, who were hit with
retaliatory tariffs imposed by our trading partners. But this kind
of “log-rolling” was able to generate the majority needed for
Congress to pass high tariffs.

This approach culminated in the infamous Smoot-Hawley tariffs
just after the start of the Great Depression. …read more

Source: OP-EDS

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