Tariffs are a terrible idea and (almost) everyone knows it.
Investors know. Businesses know. Farmers know. Just about everyone knows that tariffs will raise prices, harm consumers, reduce consumption, result in retaliation by other countries, and thus hurt the economy.
Everyone knows this except President Trump and (apparently) his enablers in Congress. Which is ironic, since by Constitutional design Congress has control over tariffs, not the president. If it chose to exercise its constitutional duties, Congress could stop the tariffs in a day.
One reason we have a separation of powers rather than an all-powerful presidency is that presidents can be right about some things but wrong about other things, and President Trump is wrong about tariffs. He’s wrong to think that foreign countries pay the tariffs, and he’s wrong to think trade deficits mean other countries are taking advantage of us.
Because tariffs, by design, raise the price of imported goods, tariffs are paid by U.S. consumers and businesses. It’s not inflation, since inflation is about the money supply, but it’s a price increase nonetheless—call it “tarifflation.”
That's why stock indices across the board took a huge hit in anticipation of and reaction to the tariffs.
We’ve explained before that tariffs cannot both be a source of significant government revenue AND at the same time alter the trade balance. Because if they succeed at one they logically must fail at the other.
The signs are already there that tariffs will disrupt the U.S. economy. Already the Dept. of Agriculture is talking about relief programs for American farmers whose livelihoods will be put at risk because of trade war. That means more federal spending, not less.
Already companies are planning their pitches to the White House to be exempted from certain tariffs. In other words, if you’re politically connected, you could get a break, while your less well-connected competitors won’t. How is that a free market? (Hint: It isn’t)
Now, don’t get me wrong—we’re delighted with many of the early moves of the Trump administration. Cutting the federal bureaucracy, reducing federal spending and federal employment, this stuff is great. Even if it’s done for the wrong reason.
But tariffs will work AGAINST these efforts, because tariffs require more federal intervention, more federal monitors, and open the door for political favoritism. By harming the economy, tariffs will seem to invalidate the other good efforts of this administration. If the economy slows because of tariffs, in the minds of many voters that will discredit the administration and limit the amount of good the administration can accomplish.
Tariffs bad. More IPI resources on tariffs:
Investors know. Businesses know. Farmers know. Just about everyone knows that tariffs will raise prices, harm consumers, reduce consumption, result in retaliation by other countries, and thus hurt the economy.
Everyone knows this except President Trump and (apparently) his enablers in Congress. Which is ironic, since by Constitutional design Congress has control over tariffs, not the president. If it chose to exercise its constitutional duties, Congress could stop the tariffs in a day.
One reason we have a separation of powers rather than an all-powerful presidency is that presidents can be right about some things but wrong about other things, and President Trump is wrong about tariffs. He’s wrong to think that foreign countries pay the tariffs, and he’s wrong to think trade deficits mean other countries are taking advantage of us.
Because tariffs, by design, raise the price of imported goods, tariffs are paid by U.S. consumers and businesses. It’s not inflation, since inflation is about the money supply, but it’s a price increase nonetheless—call it “tarifflation.”
That's why stock indices across the board took a huge hit in anticipation of and reaction to the tariffs.
We’ve explained before that tariffs cannot both be a source of significant government revenue AND at the same time alter the trade balance. Because if they succeed at one they logically must fail at the other.
The signs are already there that tariffs will disrupt the U.S. economy. Already the Dept. of Agriculture is talking about relief programs for American farmers whose livelihoods will be put at risk because of trade war. That means more federal spending, not less.
Already companies are planning their pitches to the White House to be exempted from certain tariffs. In other words, if you’re politically connected, you could get a break, while your less well-connected competitors won’t. How is that a free market? (Hint: It isn’t)
Now, don’t get me wrong—we’re delighted with many of the early moves of the Trump administration. Cutting the federal bureaucracy, reducing federal spending and federal employment, this stuff is great. Even if it’s done for the wrong reason.
But tariffs will work AGAINST these efforts, because tariffs require more federal intervention, more federal monitors, and open the door for political favoritism. By harming the economy, tariffs will seem to invalidate the other good efforts of this administration. If the economy slows because of tariffs, in the minds of many voters that will discredit the administration and limit the amount of good the administration can accomplish.
Tariffs bad. More IPI resources on tariffs:
- Who Pays Tariffs?
- Trump’s Tariffs Will Refill the Swamp
- Trump’s Astonishingly Wrongheaded Notions about Trade and Tariffs
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Today's TaxByte was written by IPI President Tom Giovanetti.