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It’s Not 1789 Anymore: Why Trump’s Backwards Tariff Agenda Would Hurt America

  • October 30, 2024
  • Laura Duffy
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Introduction

“[W]e should find no advantage in saying that every man should be obliged to furnish himself, by his own labor, with those accommodations which depend on the mechanic arts, instead of employing his neighbor, who could do it for him on better terms.”

— James Madison

In a stark break from nearly a century of fiscal and trade policy, former president Donald Trump has made imposing significant import tariffs a central part of his policy agenda for a second term. At various times, he has campaigned to put a 10% to 20% tariff on all imports and a 60% tariff on goods from China, and he has even speculated about completely replacing the income tax with tariff revenue. If he were elected and made good on these promises, the average tariff rate would soar to levels not seen since Congress imposed the Smoot-Hawley Tariff of 1930.

Though Trump’s proposals to base the tax system on tariffs have been virtually unheard of in the post-World War II era, debates over tariffs are as old as our country itself. During the 18th and 19th centuries, when the federal government’s obligations were dramatically smaller than today, tariffs were indeed the major source of tax revenue. Contrary to Trump’s claims that imposing Depression-Era level tariffs will restore America to a supposed former state of greatness, leaders of the past long recognized the weaknesses of relying on tariffs for revenue, and their concerns offer valuable lessons today. In particular, tariffs:

1. Fail to raise enough revenue to finance a modern federal government.
2. Are especially non-transparent taxes that invite preferential treatment.
3. Undermine equity by imposing arbitrarily unequal tax burdens on different households.
4. Cause damage to downstream industries and the economy as a whole.

As a result of these weaknesses, the United States (in line with every other advanced economy) largely abandoned tariff-heavy fiscal policy by the mid-20th century to facilitate the federal government’s expanding socioeconomic goals and greater role in the world. Revisiting the contentious history of tariffs in the United States — going all the way back to the Tariff Act of 1789 — reveals why Trump’s promise to return to using tariffs as a basis of tax policy would severely undermine the United States’ fiscal stability, tax fairness, and economic growth today.

Read the Full Report.

 

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