Trump Can’t Have It Both Ways on Tariffs

How can they protect jobs without raising prices?

Letters to The WSJ. 

"In his Aug. 31 letter, former President Donald Trump appeals to the tariff as the “primary source of government revenue through most of American history” to justify trade protectionism today (“Trump Says His Tariff Policies Were a Success”). His economic claims are profoundly confused.

While the U.S. did rely on tariffs before the modern income tax, a tariff-based revenue system requires taxable goods to cross borders to function. But in his comments Mr. Trump indicates that he wishes to use tariffs as a tool to restrict and reduce imports as part of his misguided quest to reverse America’s trade deficit. This purpose would undermine the purported goal of raising revenue from the tariff, which requires goods to cross borders to be taxed.

As 19th-century politicians discovered, the tariff is a quintessential Laffer curve mechanism. Raising tariff rates too high would kill off international trade, and Mr. Trump’s desired tax revenue would quickly dissipate.

Phillip W. Magness

American Institute for Economic Research

Great Barrington, Mass.

Mr. Trump insists that, despite his tariffs, “price increases for consumers were virtually nonexistent.” Really? If this were true, then his tariffs can’t possibly have protected the workers and firms that he asserts were protected by them.

Tariffs protect domestic workers and firms only by raising the prices that consumers pay to acquire tariffed goods. Higher prices are necessary to incite protected firms to ramp up production and hire more workers. A tariff that doesn’t cause consumers to pay higher prices, then, would be one that doesn’t incite domestic firms to increase production and hire more workers, and fails to achieve the goals of the Trump trade policy.

Prof. Donald J. Boudreaux

George Mason University, Mercatus

Fairfax, Va."