Podcast Summary
A brief history of US tariffs: Tariffs, or import taxes, have been used by the US to protect domestic industries and respond to trade imbalances, but economists warn of potential negative effects on consumers and global trade relations.
Tariffs, which are essentially import taxes, have gone in and out of fashion in the United States, with both Donald Trump and Joe Biden proposing them as campaign promises. Tariffs were once common but then fell out of favor due to their potential negative economic impacts. However, they have made a comeback in recent times. The history of US tariffs shows that they have been used to protect domestic industries and respond to trade imbalances. Economists, however, are concerned about their potential negative effects on consumers and global trade relations. Trump has proposed high tariffs on Chinese goods, while Biden has announced new tariffs on Chinese solar cells and electric cars. While tariffs may seem like a popular solution to address trade issues, their long-term economic implications should be carefully considered.
Three Eras of Tariffs: Revenue, Restriction, and Reciprocity: Historically, tariffs have served three purposes: generating government income, protecting domestic industries, and reducing tariffs between countries through negotiation.
Tariffs have been used by countries for different reasons throughout history. Professor Doug Irwin from Dartmouth College identifies three distinct eras and corresponding reasons: revenue, restriction, and reciprocity. In the revenue era, tariffs were primarily used to generate income for the government, especially when other forms of taxation were limited or unpopular. During the Civil War era, tariffs shifted towards restriction, as domestic industries sought to protect themselves from foreign competition. The third reason, reciprocity, refers to the use of tariffs in negotiations for mutual reduction or elimination of tariffs between countries. Understanding these historical contexts can provide valuable insights into the motivations behind tariff policies.
The Smoot Hawley Tariff Act worsened the Great Depression: The Smoot Hawley Tariff Act of 1930 led to a global trade war, increasing tariffs and worsening the Great Depression. Later, countries shifted towards reciprocal trade policies, leading to the establishment of the World Trade Organization and promoting freer trade.
The Smoot Hawley Tariff Act of 1930, a protectionist piece of legislation, led to a global trade war and worsened the effects of the Great Depression in the United States. Initially intended to protect US farmers, the tariff levels escalated due to a practice called "logrolling," where lawmakers agreed to support each other's tariffs. This resulted in a significant increase in tariffs on thousands of goods, prompting other countries to retaliate. The era of protectionist trade policy came to an end in the 1930s and 1940s, and a new era of reciprocation began. In this era, countries started negotiating and talking about trade policies, leading to the reduction of tariffs and the promotion of freer and fairer trade. The most significant outcome of this era was the establishment of the World Trade Organization, a trade club aimed at promoting international cooperation and reducing trade barriers.
Symbol of reciprocity in international trade vs job losses and tariffs: The use of tariffs in international trade could lead to increased costs for consumers and businesses, potentially hindering economic growth and the transition to a more sustainable future.
The World Trade Organization (WTO), which began in the 1940s with around 20 nations and now has 160 members, is a symbol of reciprocity in international trade. However, the era of globalization in the 1990s, which led to agreements like NAFTA and the import of goods from countries like Japan and China, also brought about job losses in manufacturing industries in the US. This has resulted in a backlash against globalization, leading to the implementation of tariffs by the US under Donald Trump and now under Joe Biden. Economists generally advise against tariffs, as they are essentially taxes paid by consumers and businesses. Currently, there is concern that these tariffs, such as the 100% tariff on Chinese EVs, could hinder the transition to electric vehicles and combat climate change by making them less affordable. Additionally, Trump's proposal for even higher tariffs on Chinese goods adds to the worry. Overall, the use of tariffs could lead to increased costs for consumers and businesses, potentially hindering economic growth and the transition to a more sustainable future.
Tariffs may increase consumer costs but could hold political benefits: Tariffs could lead to higher consumer costs, yet politicians may gain from their implementation
Tariffs, while potentially increasing costs for consumers by approximately $1700 a year according to one estimate, could still hold political benefits for those implementing them. This was discussed in the latest episode of NPR's The Indicator. The episode also featured poet laureate Ada Limon on the new podcast Wild Card, emphasizing the importance of self-grace. Support for NPR comes from Enbridge, investing over $1 billion a year in renewables and lower carbon solutions, and from Visit Fort Myers, inviting listeners to plan family trips and create cherished memories.