A tariff is a tax. The absence of tariffs on foreign goods isn’t a subsidy to a foreign government. Focused, temporary tariffs designed to level the playing field may or may not work as designed. Permanent tariffs kill capital which kills jobs. A trading nation has to be unwilling to negotiate fair trade to give any cause for keeping tariffs on them. Time will tell on Trump’s tariffs based on the laws of economics, not the buzz of media.
I asked my friend, Grok, about Canadian-US tariffs in 2024. Apparently, our previous bi-lateral trade agreements established quotas, or ceilings, on dairy products, poultry, and soft wood. If The US exceeded the limit set by the Canadians, then big tariffs went into effect. If the Canadians exceeded the US limits, then modest tariffs went into effect.
If the US wants tit for tat, that’s one thing. Which is not what the Trump across the board tariffs are. If the US makes the argument that the Canadian government’s leasing of forest land, etc., creates an undue advantage for Canadian soft wood, that is another thing – where reciprocity could be established at the putative value of the Canadian government’s handouts and help. That’s not what is happening either.
Since words have meaning and numbers rock, let’s look through the word chaff of political theater.
The laws of economics, like the laws of physics, are science. If you test the law of gravity from too high a height, it won’t go well for you. If you kill capital in economics it damages your economy. Taxes, even if they are called tariffs, kill capital.
Tariffs are paid by the importing company to the government. So, the tariffs paid to Canada aren’t a subsidy from the US government or any US citizen or business. The price of whatever is being imported just increased by the cost of the tariff. Joe or Jean Canuck,(these days it’s probably Mohammed Canuck), pays more for the American product.
Every Canadian dollar spent on that product can’t be spent elsewhere. Capital produces capital – money makes money. It’s the multiplier effect of capital creation. If enough money is taken out of the economy for the imported product, a job is lost. Starting with the lowest wage jobs first. Less discretionary income, means less eating out which means less jobs in the food sector. That is about 1/6th of our workforce that feeds us. (Need to confirm that with old Grok, old buddy.)
The cumulative effect is to be a drag on economic growth in, wait for it, Canada.
Likewise, a US tariff will be a drag on the US economy. Are there some industries which require such protection because they can’t function without them? Yes, but we should be quite specific in naming names, numbers of jobs, etc. that require such.
You may recall that from 1789 to 1861, such tariffs were a major sticking issue between the cotton-producing states and the industrial states. The industrial states needed their industries to be protected. The cotton-producing states paid higher prices for the US product or foreign product. The Federal government collected the tariff income.
When the US imposes a tariff on Canadian products which increase prices, you can calculate one US job lost for every $50k in tariffs.
Ah, but the US Government takes in $50k in revenue. Except the one job lost, if it was $50k @ year, means about $7.5k in Federal taxes won’t be coming in. And, if that person has to go on food stamps, welfare, and live in Section 8 housing then the total cost to the Federal coffers increases. Much like the cost of every illegal alien being waited on by the Federal and state governments. At some point the net gain in revenue is wiped out by the gross loss and cost of unemployment.
If tariffs are a suicidal shield for some American jobs at the cost of many others, then how can more manufacturing be returned to the US?
Look at the business model of an industry. I’ve often wondered about the former furniture business in Martinsville, Virginia. I’d like to see the numbers of that business model when it all went bust.
If the fundamental difference was American $15 @ hour wage vs. Chinese $5 @ hour wage, then what is the pro-rated reduction in costs per worker if corporate taxes are reduced to zero? What reporting functions, not compliance, just reporting functions to local, state, and the Federal government can go to zero in labor and materials cost?
What is the sum of cuts per capita worker which exceed > the costs of transportation, communication, and administration to make furniture in China?
And, are there any specific types of furniture which could be made at an advantage in Martinsville? Show me the numbers!
Tariffs are a tax. Use with extreme caution. Want manufacturing jobs? Cut taxes. Deport illegal aliens. Cut regulation reporting burdens.
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One thing I think folks are forgetting is that the tariff is paid to the US government. If you combined tariff revenue with cutting trillions out of the budget, perhaps we can eliminate income tax. Yes, I know I live in a fantasy world sometimes. Mabye we could at least REDUCE income tax. Income tax is a heinous obscenity. It taxes success, achieving the American dream, and punishes those who work hard to build a better life for themselves and their kids. Like the Fair Tax, the somewhat increased costs of goods from countries that have too long gotten the better of ALL trade agreements would be a consumption tax. Big difference. Perhaps, we could offset this increased cost of some goods by lowering other taxes. That is IFF the Quisling poltroons in Congress actually DO SOMETHING — ANYTHING — to enshrine the DOGE recommendations and defunding of federal agencies in law. Again, I know: fantasy. The Repugnant Republicans are only slightly less nefarious than the Demonic Democrats.
I for one am willing to put up with a short trade war if it stabilizes before the mid-term elections and if it puts us on a more even footing with our trade “partners.”
In his book Where Have All the Leaders Gone, leftist Lee Iacocca asserts that all our trade agreements need to be renegotiated so that the US is not always punished. Trump understands that we need to negotiate from a position of strength — our leverage — access to US markets. If you want access to our markets, you can either move your manufacturing onshore or negotiate mutually beneficial trade agreements. If Canada, the EU, or whoever isn’t ready to negotiate in good faith, to Hell with them.
I had to laugh when the new Canadian PM said that the relationship between the US and Canada is going to change. I hope it does! I am tired of spending billions (trillions) subsidizing Canada’s and Europe’s defenses while they focus on smashing our economy.
I cited the income to the US Government in my piece. You aren’t going to get $4T in tariffs. And if you do then do the math on how many jobs that kills. Every $1b in tariff money to the Govt kills 20k jobs. Which reduces the money to the government with the loss of their income taxes plus whatever welfare comes their way when they don’t have a job.
Tariffs to get fair play could be reasonable. Tariffs to fund the government won’t work unless you go back to the government including the military that the US had in 1860 or 1898.