The best tariffs are no tariffs anywhere in the world.
Milton Friedman and any other free-market economist who ever lived would say the same thing. In a perfect world, raw materials, manufactured goods, and services of all types would be exchanged on a mutually beneficial basis based on quality, service, and price without any interference from pesky, economically illiterate politicians.
We don’t live in a perfect world. People whose livelihoods and families depend on their jobs ― which is everyone short of coupon-clippers and trust fund babies ― don’t see the world through the pristine lenses of theoretical economics. They fight tooth and nail to protect their incomes, and international macroeconomics and free market philosophy can be damned.
Tariffs on foreign goods funded the U.S. government from 1789 until the 16th amendment, which allowed income taxes, was ratified in 1913. After the Revolution, Alexander Hamilton, our first Treasury secretary and de facto first Commerce secretary, not only advocated for an aggressive tariff regimen to produce needed revenue to retire debt and operate the new government, he instigated the first American industrial policy. He received funds from the new government to pay for spies to go to British manufacturing companies, steal their secrets and come back to set up a new industrial base so America could develop its own manufacturing sector for domestic consumption and national defense purposes.
China may be the worst perpetrator of unethical and “illegal” trade practices for the past 40 years, but America was no slouch at protectionist trade policies for much of our early history.
The first industry Hamilton targeted was textiles. People needed clothes and undergarments to wear, and the technology was relatively simple and inexpensive to set up in New England, which then migrated to North Carolina later.
Hamilton was the original perfect DOGE employee. In 1791, he wrote the copious “Report on the Subject of Manufactures” to present to President George Washington and the first Cabinet by himself without thousands of federal workers helping him.
Every country has used tariffs to protect its nascent economy. The hope is when those economies mature, tariffs will cease to be necessary and will be dropped in the noble name of free trade.
That almost never happens. Nations don’t drop tariffs unless they are forced to do so through treaties and forceful action by trading partners. Domestic business owners and farmers who benefit from restriction of competition through high tariffs exert political pressure on elected officials to continue protectionist policies simply because they don’t want to lose market share and money.
President Donald Trump’s threat to enact reciprocal tariffs on trading partners may yield the results he wants. I remember speaking with a foreign diplomat in Washington who casually mentioned that the day the U.S. started matching tariffs dollar for dollar with its trading partners who wanted to keep protecting their industry, worldwide tariffs would fall immediately to zero.
There is no appetite to risk losing access to the largest consumer market in the world because a country wants to keep protecting its clotted cream industry.
The one thing America should do is strictly enforce existing trade agreements. During my time as chief of staff to Sen. Elizabeth Dole in 2003, we reported a total of 52,000 lost textile jobs in North Carolina on a weekly basis to the Bush 43 White House and begged them to invoke countervailing tariffs to halt the wave of textile imports under the “surge” protections of the textile trade agreement.
It fell on deaf ears for a full seven months, most likely due to State Department interference because of their desire to help foreign countries, not American workers, first.
And then Pillowtex, formerly Cannon Mills, in Kannapolis laid off 7,000 textile workers in one fell swoop on July 30, 2003.
Staffers from the Bush White House and Vice President Dick Cheney started calling frantically to ask: “What the heck is going on with the textile industry did you say?” After a flurry of meetings, a rather lame decision was made to raise tariffs on three categories of textile apparel ― women’s bras, panties and lingerie ― hardly any of which were made in North Carolina.
Trump’s tariff strategy is different because he is using the levers of commerce to force trading partners and allies to do things outside of pure commerce: enforce border security (Mexico, Canada); increase expenditures for their national security and defense purposes (EU); and stop selling fentanyl and engaging in every illegal trade practice known to man (China).
It may work out as when the Venezuelan president caved immediately to Trump’s demand to take back Venezuelan criminals who were in America illegally.
Time will tell.
