Tariffs Are Taxes
"You keep using that word. I do not think it means what you think it means." - Inigo Montoya
Since January 20 of this year, I have been too depressed by politics to try writing anything. Maybe that is inaccurate. There is hardly a day that has passed since the inauguration of DJ that I haven’t seen a headline that I wanted to talk about. But I write so slow. If you followed me during the election for California propositions, you should know that I like to cite my sources and consider my arguments carefully. And even then I’m not trying too hard to persuade you so much as to make sure you’re informed about highly technical and opaque topics. (On the other hand, perhaps if we all had tried harder at persuasion, maybe California would not have voted to keep slavery in the year 2024.) In any event, every day has been a barrage of news and there was no hope for me to write fast enough and research well enough to be able to share anything meeting my standard and also remaining relevant.
Yesterday broke me.
Yesterday, DJ unilaterally imposed a system of tariffs (taxes on imports) that will destroy our country and our allies because he and his team are a bunch of economic ignoramuses.
What is the point of researching anything?
This is basic Econ 1 stuff. Increasing the price of goods through a tax will shift the supply curve for those goods upward (since each quantity supplied on the curve will only be available at the original price plus the tax), decreasing the quantity of goods traded in equilibrium. The split between who pays the tax is entirely decided by relative price elasticities of demand and supply. But as long as supply or demand aren’t perfectly inelastic, there is deadweight loss - surplus value that could have been achieved by producers and consumers, if only all mutually beneficial trades had been feasible at the equilibrium price. But those trades won’t happen now because the price has been jacked up by taxes.
Oh but it’s worse than that. The tariffs per country aren’t “reciprocal” (and two plus two does not equal five). Reciprocal tariffs might make some remote sense! But that’s not what we’re getting. A reciprocal tariff could be implemented as a bargaining tactic to get trading partners to lower their tariffs in exchange for us lowering our own. No, these tariffs announced yesterday are not reciprocal tariffs. They are tariffs proportional to our trade deficit with a country. Translation: the more we buy stuff from a country over how much they buy from us, the higher the tariff. That means all the places where our demand is the highest are the places where goods prices are about to skyrocket. These aren’t reciprocal, they aren’t even inverse - they are perverse.
What if we start shifting our demand to another country? Let’s say the penguins start producing clothing for us to buy. Will the tariffs shift to punish the penguins?
Haven’t the penguins suffered enough with a 10% tariff?
They say those who don’t study history are doomed to repeat it. I studied history. I studied economics. Studying didn’t save me from history’s return.
If you’re still with me, you’re probably a liberal, let’s face it. So time for some real talk here. The Democratic party controlled the House, Senate, and Presidency from 2021-2023. In that time it was nowhere in the public discourse to discuss divesting power from the Executive branch in case DJ or any other fascist returned to the White House. We need to start talking about this. Electing Democrats and thinking “maybe the good guys will never lose another election” is utter delusion. We need to be more intentional with the laws we advocate to restrain the power of the state. Not because the state can do no good but because it can do terrible harm.
This isn’t a call for anarchy. I’m asking you to consider a world where instead of investing the power to negotiate tariffs in the hands of the President - who may be elected popularly with some insane and wrong ideas about economics - and instead of leaving it to Congress - which historically led to protectionism - we advocate for things like trade policy be handled by politically independent bureaucracies with goals set by Congress.
Yeah, it ain’t pithy. I can’t give you pithy.
What I’m saying is, let Congress represent the will of the people. If the people want free trade, then let them elect free-traders to Congress, and through Congress they can have the Trade Bureau pursue a free-trade policy. If the people want mercantilism - then they are wrong and should be ignored, but whatever - they can elect mercantilists to Congress and let Congress shift the priorities of the Trade Bureau to be more exploitative in our trade agreements.
Honestly, though, do you want to leave something as technical as economic policy to the median voter? The mandate to the Trade Bureau should simply be: maximize our material welfare by means of trade and negotiation of terms of trade with foreign countries.
Set it and forget it.
Yeah none of this is politically feasible. But determining economic policy by popular vote is madness.