458: Tariffs

Do you think in-country manufacturing should be protected with tariffs and import restrictions?

Full episode script

I fully admit, when this topic came up, I spent more than a few days researching and trying to figure out how to approach the question. Then, like magic, I listened to my usual list of podcasts and Planet Money did an episode on — surprise — tariffs.

One of the things that shocked me when I listened to this episode — tariffs were the second law ever passed by the United States. In an era with no income tax and very few other choices for raising income, the government instituted what today are called revenue raising tariffs on all the goods brought in to the country.

These are just one of two types of tariffs — the kind intended to bring money in, but not necessarily protect the manufacturing of the same goods done in country.

Protectionist tariffs, on the other hand, are intended to dissuade the import of goods by making it prohibitively expensive to purchase those items. Like all taxes, there’s the challenge that the more expensive something is, the less likely the tax is to raise additional money, because less of that item is purchased (at least, in theory and on paper, which doesn’t always work out in the real world.)

There’s lots – and I do mean LOTS – of debate about the eventual impact of tariffs and protectionist policies. There’s arguments saying that these policies are what led to the industrial revolution — and others saying that they were the policies that not only drug down the industrial revolution, but also eventually led to the depression. A little over a year ago, Mark Fahey did back-of-the-envelope calculations for CNBC and found:

“Either way, the final cost of the tariff tends to fall on American consumers. For that reason, tariffs are often considered a regressive tax, since price increases tend to hit low-income Americans the hardest. So if the current tariff load comes out to a little more than $100 per citizen […] If we raised tariffs on China from around 3 percent to 45 percent and Mexico from close to zero to 35 percent. that would cost companies importing goods from abroad a little more than $300 billion a year, assuming all else was equal. If that price was passed on to consumers, that’s almost $1,000 for every person in America.

This script may vary from the actual episode transcript.