Trump’s Tariffs for “Dummies”: Don’t Fall in the Left’s Trap
Posted On June 3, 2019
This article contains commentary which reflects the author's opinion
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Misconceptions on Tariffs
As you peruse the internet, looking at the comments of talking heads and “armchair” economists, it is astonishing how many people do not understand the basic concept of tariffs. Many people and organizations subscribe to the “synonym” theory of tariffs, which states that because the meaning of the word “tariff” is similar to the meaning of the “word” tax, they are one in the same. Much of this confusion comes from a misunderstanding of the word “tax,” which is often seen as “a way in which the government takes money from a private party,” when it really is “ any contribution imposed by a upon individuals [therein], for the use of services of the state, whether under then name of toll, tribute, tallage, gabel, impost, duty, cost, excise, subsidy, aid, supply, or other name.” This draws a sharp distinction between a tariff, which is a use fee and a duty, which is a tax.
Difference Between Fees and Taxes
The difference between fees and taxes is simply a review of the spectrum of how the government takes your money from you in a legal manner. Ironically, many of the most “Conservative” people in the United States, including the talking heads on Conservative TV, do not understand that tariffs are one of the most Conservative ways in which the government can raise money. Let us begin with the statement that a Conservative believes that the government should have as little involvement as necessary in the lives of its citizens possible, while still preserving the basic freedoms guaranteed in the constitution of whatever nation we are talking about. If we can accept this as a very “basic” definition of Conservativism, then we can easily understand the spectrum of “government interference” through the process of revenue collection. The more choice you have in the matter, the less oppressive you the means of collection is. For example, here is a simple mockup of the spectrum from most oppressive to least oppressive:
- Income Tax – Income taxes are most oppressive because they impose a duty on all work that a person does to sustain themselves.
- Other Payroll Taxes – Payroll taxes are similar to income taxes, but not as oppressive because they have a narrower scope.
- Sales Tax (without necessity exception) – While income taxes impose a duty on our means of sustenance and life, sales taxes (without necessity exception) impose a tax on the sustenance. This is a lower level of oppression because it allows people to choose where they will be taxed.
- Property Tax – Property Tax impresses an excise on something we already own. The most common form of this is on “real property” (read land), however, this category falls into all licensures such as automobile registration, gun permits and other taxes on items/rights we already own.
- Capital Gains Tax – Capital gains tax is in the same vein as income tax, however, the investment is a choice; therefore, it is a lesser evil.
- Business Taxes – Business taxes are income taxes for entities. While they are basically the same thing as income taxes, since a person has a “choice” to be a productive business owner (or an employee), the tax does offer some measure of choice, but is still oppressive.
- Export Duties – Export duties are excises on things we are shipping out of the country. While these may seem as oppressive against the seller, they are a way of the government to ensure supply in the domestic market to prevent cost growth. The choice here is whether to sell in the domestic market for less or to sell in a foreign market for more.
- Tolls – Tolls are a use fee. If you use an item, then you are taxed for it. The reason that these are oppressive (and not lower on the list) is most tolls are on items for which we have already paid.
- Sales Tax (with necessity exemption) – One of the most egalitarian taxes (if there is such a thing) is the sales tax with a necessity exception. This tax allows people to choose on which items the government will tax them. If the necessities (such as food and clothing, housing and medical care) are exempted, then everything that we use then becomes a choice. If one does not want to pay tax on a TV, then one does not buy a TV. Since a person can still live without a TV, it is a real choice.
- Import Duties – Import duties are the least oppressive because they are on citizens and entities of another country. While the cost is usually passed down to the citizens of the importing nation, you have the option of buying domestic. While the item you “want” may not be available domestically, if it is something you need, then it is here. This distinguishes between luxury items and necessities, something most people do not want to do any more.
There are other ways that the government can collect revenues from people; however, these serve to show the spectrum of sanctioned separation of you from your money.
Tariffs are (Not) Bad
In order to fully dismiss the argument “tariffs are bad,” one has to address three specific ‘myths’ that are often espoused by the neo-cons who are promoting the narrative that tariffs are bad. These myths are:
- An Import Tariff is a Tax – This is the most common myth that anti-tariff people use (no one likes tariffs). An import tariff is not a tax because it is on a good that is owned by a person outside of the country and is not yet inside the country. The tariff is a fee for access to a market, which since it is not on a citizen, a resident of the country, or a product or service already in the country, it is not, by definition, a tax.
- Tariffs (and taxes in general) are Anti-Capitalist – Many people confuse capitalism with plutocracy, which is an easy mistake to make. Plutocracy is the unrestrained market where the government has no control and the power is derived from corporate wealth. Tariffs specifically prevent this close relative of fascism from becoming the dominant system within a country. While excessive tariffs are anti-capitalist, reasonable tariffs (under 40%) are a necessity to maintain domestic markets.
- Free Markets are Capitalist – This is a classic economists fallacy. Too often economists conflate macro-economic free markets (which are universal failures) to micro-economic free markets (which are often quite successful). Just like the theory that a 6 oz. smoothie is a good thing, so a 60 oz. smoothie must be even better, is a recipe for gastrointestinal distress; the idea that because free markets are effective at the micro-economic level means that they are effective at the macro-economic level is just not true. At the micro-economic level they are single, double or at most multi-element transactions; whereas, macro-economic exchanges have millions if not billions of elements. This is the difference between people who are business analysts and those who are economic theorists, which is the difference between the real world and the ivory towers of academia.
Once these myths are dispelled, the argument against tariffs seems almost silly. Which is why we should be teaching actual business practices in schools, rather than wrought micro-economic theory misapplied to macro-economic situations, such as international trade.
Opposition is Spreading Confusion on Tariffs to Sabotage Trump’s 2020 Re-Election
The tariff argument is a tool that is being used by the Washington elite (on both sides) to divide the Conservative base in our country and set Conservative against Conservative before the 2020 election. The truth of the matter is that tariffs were successful throughout most of the history of the United States. The Founding Fathers built tariffs into the economic fabric of the United States because they knew that domestic market protection was essential. Even Theodore Roosevelt, seen as the Conservative icon, said “Now, to correct the trouble, it is necessary, in the first place, to get in mind clearly what we want, and, in the next place, to get in mind clearly the method by which we hope to obtain what we want. What we want is a square deal in the tariff as in everything else; a square deal for the wage-earner; a square deal for the employer; and a square deal for the general public. To obtain it we must have a thoroughly efficient and well-equipped tariff commission.” The change in thought about tariffs started with the Underwood Tariff, which overturned the Payne-Aldrich Tariff Bill (which allowed tariffs of up to 42%). The Underwood Tariff, which was forced upon congress by Woodrow Wilson (along with the Income Tax and the Federal Reserve), lowered the maximum tariff rate to 26%, allowing domestic markets to be ransacked. Combined with the advent of the income tax (which was used to offset the revenue losses of the Underwood Tariff) and the creation of fiat currency, the removal of tariff protections from our markets is a lead cause of the Great Depression.
When we dispel these misconceptions that tariffs are bad, not just bad for lobbying groups, we can understand the true use of tariffs, as Roosevelt said, to get a square deal. Too often our elected representatives feel as if they are the leaders of the nation, not the civil servants of the people. When they enter into this “power grab” they start to put the interests of industries, special interests and even other countries above the interests of the people. Our government has very limited purposes, and maintaining other countries economic expenses at the cost of our own is not one of them. Tariffs are an active way in which the government can protect domestic markets without oppressing the people of the United States. While none of us like tariff, we must understand that they are essential to maintain our economic growth. Even now, as you watch the collapse of certain market segments you will see that these are the market segments who are “double dealing” putting their corporate interests above the national interests of the nation and their employees. The options open to the government to curtail this are tariffs and more regulations, which, as a Conservative, do you choose?
Dr. Christopher Smithmyer is a writer for NRN, the Vice President of International Affairs at Brav Online Conflict Management, and an Adjunct Professor of MBA Business at Doane University. He is also part of the founding team at BlackWalletLTD, one of the leaders in stable coin 2.0 ecosystem maintenance. Dr. Smithmyer’s focus is international business and finance, along with reviews of board games, weapons platforms, and survival items.