Former President Donald Trump recently pledged to enact a universal 10% tariff on all imports if he regains the presidency. His adviser Larry Kudlow argues the revenue would pay down the national debt, level America’s tariffs with those of other countries, and counter Chinese currency manipulation.
None of these arguments are compelling because the tariffs Trump and President Joe Biden have already enacted have sparked trade wars, throttled supply chains, and slowed the recovery from the pandemic. More of the same is the last thing America needs.
First, the national debt argument. America imported about $3.3 trillion of goods last year. Ten percent of that would be $330 billion in tariff revenue. That is a big number because it is in the same ballpark as President Joe Biden’s proposed revenue from tax increases. It is also a small number because it would cover fewer than nine months of just interest payments on the national debt. The $32 trillion of principal on the national debt would remain untouched.
Actual revenues would be even less. The point of tariffs is to discourage imports. So if the universal tariff works as planned, the government would take in 10% of a smaller number than $3.3 trillion, and its debt relief would be that proportionally less.
A second universal tariff goal is symmetry. America has lower tariffs than most other countries. Trump and Kudlow think they should be the same. There are two ways to do this. One is for other countries to lower their tariffs. The other is to raise ours.
The first option has been slowly but steadily working for about 75 years, starting after World War II. When the General Agreement on Tariffs and Trade was founded in 1947, the average worldwide tariff was 22%. Today, it is closer to 5%. It’s a slower process than many politicians and economists prefer, but it works when people let it.
Trump instead prefers raising tariffs to match global levels and then using that leverage to convince trading partners to lower their rates. We would then lower our rates to match in return. That’s just the GATT/World Trade Organization negotiation process but with more steps. And those extra steps sabotage the whole process.
Trump has said that his long-term goal is for both the U.S. and its trading partners to have zero tariffs. He said something similar as president. The self-proclaimed Tariff Man didn’t mean it then, as evidenced by his first term, and he doesn’t mean it now.
Read the full article at The Washington Examiner.