Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers, and his views can be followed on a podcast: https://mortonjohn.libsyn.com. His column appears in Indiana newspapers.
I’ve been asked to explain Tariffs. It can’t be done in 500 words, but here goes.
Tariffs on imports are not like the property, sales, or income taxes. Those taxes are meant to raise money for government spending or redistribution. American tariffs, today, are intended to shape the economic relationships between nations.
America and France produce wine. A tariff by the United States on French wine will, in theory, increase the price of French wine for Americans, resulting in less French wine being bought. Americans then would buy more American wine, increasing the demand for American grapes and the land on which they grow, as well as the wages of those who work in vineyards and the wineries. The Gallo and Christian Bros. would prosper.
In time, American wines could become as respectable and competitive as French wines, and the tariffs could be removed, their mission accomplished.
Maybe. But it is also possible Americans will switch to other beverages if the price of French wine rises. The very idea of drinking American wine could drive those with sophisticated palates to British ginger beer.
Tariffs are meant to increase demand for domestic products. But a very large number of unknown conditions lurk behind that simplistic objective.
Who actually feels the burden of the tariff? Does it inevitably get passed on to the consumer? The tariff would reduce shipments into the U.S., suppressing the demand for transportation and warehousing, driving large numbers of firms and workers in those sectors into a desperate dance for business, pushing down rates and wages.
Perhaps consumers avoid the French wine and switch to Dr. Pepper, Mr. Pibb, or some other “soft” drink. Then, with less wine-induced inebriation, auto accidents will fall, insurance rates will decline, some auto repair workers will lose their jobs, hospital admissions and casket sales will not meet their goals, and the Women’s Christian Temperance Union will be re-chartered.
[Please note the word “will” in the paragraph above. That is the hallmark of economists. If the word “may” was used, it would denote uncertainty and, in these times, boldness and assurance are highly valued over the timidity of accepting reality.]
A tariff is essentially a statement of weakness. A tariff on foreign cars says we cannot produce cars at prices or with the quality of those foreign cars. It declares we need for protection for our auto industry from the competition of others.
Tariff advocates want “a level playing field.” What they mean is “We can’t compete on quality or price, but need protection.”
And where does tariff revenue go? To make America more competitive or just into the big Congressional money pot?
Imposing or increasing tariffs is a step backwards given the technological advances weakening artificial national borders. Just as the U.S. Constitution prohibits tariffs between states, tariffs between nations should be written out of our future.