Donald Trump’s mental decline and incoherence have become increasingly apparent in recent weeks, finally meriting mention in The New York Times. It is difficult to discern from his bizarre statements whether he is riling up his base for entertainment, intentionally lying, or doesn’t know what he is talking about. (It could be all three.)
Nowhere is this more apparent than when Trump talks about tariffs. His meandering response to a question at the Economic Club of New York about paying for child care relied on a bizarre reference to how tariffs would “tax foreign nations at a level they aren’t used to.” Does Trump not understand that this isn’t how tariffs work? Is he lying about it? Is he simply decompensating? (Lawrence O’Donnell’s breakdown of Trump’s lie/delusion about tariffs and the Times’s failure to call him out went viral.)
Tariffs are Trump’s crutch response to almost any overseas problem, his elixir for international ailments. If a country doesn’t do what he wants, he threatens a tariff. But the 2024 version of Trump is even more radical, extreme, and dangerous on this issue than his 2016 and 2020 equivalents—because now, instead of wielding tariffs to compel countries to do his bidding, he promotes these levies as a domestic fiscal remedy allowing him to balance the budget and even eliminate income taxes without the drawback of higher retail prices.
But tariffs do not work the way Trump says they do and cannot accomplish what he claims they can. Trump says that tariffs are a tax that other countries pay the U.S. (or, in Trump’s words, “him”) for the privilege of exporting goods to the U.S. Trump sees international relations in the same paradigm as mob bosses or feudal lords. If you want to do business on his turf, you must pay for the privilege.
Of course, any economist (or even any economics major) knows that’s not how tariffs work. Tariffs are taxes that an importer has to pay, whether that importer is foreign or domestic, for the privilege of bringing goods into the U.S. for sale. So, let’s say you’re an American-based tea distributor. If the government charges a tariff—an import duty—on tea from India, you must pay the tariff. It’s not India paying the tariff—it’s you, the U.S.-based business. And if you have to pay a tariff to import the tea, the likelihood is that you will charge a higher price, which jacks up the price on the end consumer.
The tea example is salient because one of the most celebrated moments in American history was about this idea. The Boston Tea Party occurred because the British Crown imposed a tariff on tea imports to the colonies but exempted one importer: the British East India Company, allowing it to sell tea to the American colonists at lower prices than colony-based importers could afford. This outraged the colonists, who didn’t want to pay higher tea prices and didn’t want to be the captive market for the East India Company, so they rebelled against the tariffs by dumping the tea into the harbor.
By their nature, tariffs result in higher prices for the end consumer, making them effective as a protection for domestic industries against cheaper or otherwise unfair competition. Generally, it is more expensive to manufacture goods in the U.S. than overseas because America has higher prevailing wages and labor standards, plus more environmental and regulatory requirements than many foreign manufacturers. Because of that, it will oftentimes be less expensive to buy a good that is imported from overseas than to buy a domestically manufactured competitor.
Tariffs level the playing field by reducing the competitive advantage of foreign products since the importers will almost certainly have to raise prices to make an acceptable profit. Similarly, tariffs can play a role in fighting against unfair trade practices: if a country subsidizes an exporter, that allows that exporter to keep prices of exports low. Other countries can fight against that by imposing steep tariffs on subsidized goods to re-level the playing field. The federal government gains revenue in the process, while consumers bear the cost of tariffs at the point of sale.
All countries impose some tariffs, and to be fair, the Biden Administration has kept some of Trump’s. Tariffs can be the best in an imperfect world when there are specific industries a nation wants to protect and when another government is unfairly subsidizing its industries. China is the most notable example of this. Beijing has subsidized domestic manufacturers and glutted the global supply of Chinese products, crippling other nations’ industries. In that case, protective tariffs may be the only response to such economic aggression.
But such defensive tariffs do not significantly increase a country’s wealth or fund childcare programs.
There’s an important lesson in all this for domestic policy. Trump’s latest fixation is the presidency of William McKinley because the turn-of-the-century Republican was responsible for tariff legislation that helped propel him to the presidency in 1896.
Indeed, for the first century of America’s existence, federal revenue primarily came from tariffs on imported alcohol and tobacco. Of course, the federal government of 1900 provided much less. It required much less than Washington today—but even if we ignore that for now, it stands to reason that the very rich would far prefer a tariff-based federal revenue system than a taxation-based one if such a thing were possible.
Funding the government through a tax on goods is regressive. It impacts the poor significantly more than it does the rich. If you’re a working-class person, tax hikes on essential goods and services are something you’ll feel. If you’re Elon Musk, you really won’t care. From a class warfare point of view, the fixation on tariffs is somewhat equivalent to the far-right obsession with replacing the income tax with a national sales tax, which would shift the tax burden from the rich to the poor (and, in the process, encourage economic contraction by disincentivizing the purchase of goods, which is what economies depend on for revenue and resiliency.)
But the obsession with tariffs manages to be even worse than the hackery about a national sales tax. Trump is not campaigning to replace one type of tax with another. He is campaigning on the sham idea of getting something for nothing by cutting income taxes and imposing tariffs on “foreign governments,” which he then says consumers won’t have to pay, balancing the federal budget in the process. He says he’ll eliminate taxes and force foreign countries to fund the federal government.
It’s a sham, not just because governments don’t pay tariffs—importers, mostly domestic ones, do. But it’s also a sham because the harm of excessive tariffs is clear. If the government imposes a tariff that either reduces its profits or forces a good to be so expensive that it can no longer compete in the American marketplace, it will withdraw from the market.
Nothing forces an importer to stay in the American market and pay tariffs to the United States while keeping prices the same for the consumer. They will not import the product, meaning zero government tariff revenue and zero product availability for consumers. Similarly, other countries won’t take U.S. tariffs lying down: they will impose retaliatory tariffs of their own, making it similarly harder for companies to export American goods abroad, shrinking economic output for everyone.
This is not a theoretical concept—we’ve already seen it. After the 1929 crash, Herbert Hoover tried to protect American industries by signing the Smoot-Hawley Tariff Act, which sharply raised tariffs to a level not seen since 1828. The result was predictable, with other countries imposing retaliatory tariffs that crashed American exports and, from the point of view of historical consensus, deepened and lengthened the Great Depression.
Facts cannot penetrate Trump’s narrow, incurious, egotistical worldview. He believes that as the leader of the world’s dominant economy, he can bully the rest of the world into submission. And like Hoover—not coincidentally, the only other president to preside over a net loss of jobs in the United States—he will make an easily avoidable mistake that costs everyone.
