We are in Day 1 of the long-feared tariffs and the Dems and liberals are predicting a nightmarish future. Past protectionist tariffs led to trade wars that were ultimately disastrous for all parties involved. In the early days of our nation the founders felt that tariffs were necessary to raise revenue and encourage domestic production. Tariffs are essentially an “added value tax” that increases prices to the consumer. Throughout history tariff popularity has risen and fallen. Prior to imposition of the income tax in 1913, tariffs were actually the main source of revenue for the federal government. For the greater part of the 20th century tariffs remained low. The Smoot-Hawley tariff act was passed by Congress in 1930 was an effort to pull the nation out of the Great Depression. The bill imposed tariffs an average of 40% on over 20,000 products. Congress hoped the tariffs would help rebuild domestic industries and stimulate our economy. Widespread retaliation actually led to a 66% decline in world trade from 1929-1934. Rather than achieving the hoped for results Smoot-Hawley likely prolonged the Depression. Since World War II much of the world has been more open to a free trade market. The world economy has grown vigorously under a free trade environment. Many however, believe that free trade does not always equate with fair trade. The GDP of mainland China has grown by an average of over 10% a year for the past three decades. China has fueled that type of growth with its own version of protective tariffs and limited imports. China is the world’s second largest economy and it continues to grow by exporting far more than it imports. It generates 45% of the world’s steel production and many feel that it dumps subsidized steel (often below cost) on the world market. George W. Bush tried to impose a similar 30% tariff on imported steel in 2002. More jobs were lost in the steel industry than were saved and ultimately the tariffs were ended. Trump’s opponents believe the same outcome will follow these tariffs.
Although not known for their agricultural prowess, China is the world’s largest producer of consumer agricultural products. Nearly all arable land is put into food crop production on farms of modest size. Despite a robust agricultural sector, China imports significant amounts of soybeans, corn, beef and pork from the U.S. American farmers will be among the losers in a prolonged trade war with China and our allies. President Trump is asking that international tariffs be fair and reciprocal. Many of our allies impose much higher tariffs on American imports than we impose on imports from their countries. Trump’s efforts are aimed at leveling the playing field with foreign nations. In the case of steel and aluminum, the goal is slightly different. The steel industry has been decimated by cheap imported foreign steel. Many steel mills have closed and booming steel towns turned into ghost towns. It is critical for national security that we have a robust steel industry that can ramp up production for building military equipment should the need arise. Aluminum is also an essential component in weapons systems and other products critical to our economy. We can’t leave ourselves vulnerable to supply or price blackmail from foreign suppliers. Hopefully the world will come to realize that free trade is optimal for everyone. Cooler heads will prevail and the President may be proven right once again.