Trump’s Latest Tariff Idea Is Dangerously Foolish

Terrible economics aside, there’s simply no possible way it could work

By Scott Lincicome of Cato.

This iron law of economics is one that, as Dartmouth economic historian Doug Irwin explains, even protectionist heroes like Alexander Hamilton understood. Congress adopted tariffs that the founding father (and author of the famous/infamous Report on Manufactures) recommended, but these tariffs “were not highly protectionist because Hamilton feared discouraging imports, which were the critical tax base on which he planned to fund the public debt.” This dynamic is also something that today’s Republicans understand—at least when it comes to income taxes: the oft-cited “Laffer curve” posits that a tax on a certain economic activity (usually labor) won’t raise any revenue when it’s set at zero or 100 percent, with a hump (curve) in between.

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The tariff plan would also be plagued with practical problems. In just coverage alone, would Trump’s tariffs apply to all imported necessities like food and beverages (almost $200 billion last year); clothing ($51 billion); shoes ($18 billion); and medicines ($203 billion)? Would it apply to the almost half of all imported goods that are industrial inputs used by American manufacturers to produce (and often export) other stuff? Would it apply to that $700-plus billion in services, including the ever-increasing share transmitted digitally or the $149 billion that Americans spent traveling abroad last year (considered a “travel services import”)? Would it apply to Americans’ personal, small-dollar purchases of retail items, whether made as tourists abroad or via direct mail?

The list goes on and on.