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News Link • Tariffs

The Tariff Issue

• https://www.paulcraigroberts.orgPaul Craig Roberts

There are other means, such as quotas.  Quotas on imports into the US of Japanese cars were part of the US auto producers bailout negotiated in the final year of the Carter administration.

I will attempt to put the issue in a correct perspective.  It is not Trump's intention, at least at the present time, to institutionalize a tariff regime.  Trump is using tariffs as a threat to secure agreements that he thinks are in America's interests.  So far 50 countries have, according to reports, agreed to remove their tariffs on US goods.  The countries responding aggressively seem to be China and our European allies.  I explained yesterday how Trump could better have gone about his task.  Nevertheless, as the Commerce Secretary said, Trump's tariffs are not expected to extend beyond a few weeks or a few months of negotiation.  

During this time there could be supply disruptions.  Apparently, Trump is aware and has released an 11-page appendix that exempts all sorts of imported items that US producers require to continue their operations.  Whatever disruption does occur, should be small compared to the Covid lockdown supply disruption, the basic cause of the current inflation. The Covid disruption was pointless and counterproductive.  The tariff disruption, if there is one, is the cost of establishing a fair and uniform trading system.

So, Trump is not being arbitrary or on a rampage to destroy international trade. Tariff negotiations, especially with so many countries and products can go on for years.  Trump might think that he only has two years to get anything done before the Democrats steal the midterm elections and bring his renewal of America to a halt.

President Trump has spoken of tariffs in a wider and much more important context.  Over most of American history until the First World War, tariff revenues were the source of government revenues.  An income tax was unconstitutional and a violation of freedom.  The definition of a free person is a person who owns his own labor.  A slave does not own his own labor, and a serf only owns part of his labor.  A person required to pay an income tax does not own that part of his labor that he must provide to government in order to avoid imprisonment.  The difference between a medieval serf and an American taxpayer is the serf paid the tax in kind as hours worked, and the American pays the tax in money as a percentage of his income.

Classical economists, real economists  unlike the faux ones of today, understood that factors of production–labor and capital–should not be taxed, because the supply of both to the economy is reduced by taxation.  Supply-side economics is based on this principle. Thus, its emphasis on lowering the marginal rates of taxation. Reducing the supply of factors of production, reduces the economic growth rate and the national income.  The century that the US economy has labored under income tax has costs us substantially in lost income. The classical economists said that taxation should fall on consumption not on factors of production.  


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