Foreign Tariffs Are Just Domestic Taxes

Why American consumers pick up the tab for Trump's $50 million tariff on China.

In the aftermath of a “financial crisis” that wasn’t financial, various federal agencies levied all sorts of fines on banks and investment banks. It didn’t matter that the “crisis” was wholly a creation of federal intervention (think bailouts) in the healthy decline of certain financial institutions. With the federal government desperate to shift the blame for its incompetence on others, already-struggling corporations were forced to hand over tens of billions to that same federal government.

Think about the above for a minute. As businesses died and people were laid off, and as financial institutions in particular struggled, an entity that is itself a massive weight on economic vitality decided to increase its size by force. Having erred mightily with its crisis-inducing interventions, the federal government decided to give itself a raise.

Trump's Tariffs on China 

Trump raised taxes on the American people by $50 billion.

Which brings us to President Trump’s confirmation last week of tariffs to be imposed on Chinese exports to the U.S. The number that various media outlets reported was $50 billion. Translated, Trump raised taxes on the American people by $50 billion.

Up front, Trump’s actions are problematic. Frequent readers of this column are familiar as to why they are, but simple truths can’t be repeated enough: the country most open to the world’s plenty is the country whose people are most advantaged. The latter is firstly true when we consider why people get up and go to work each day: it’s to get things in return for their work. Nothing could be simpler. Our work is an expression of a desire to “import” from either next door, or from some producer thousands of miles away. To work is to demand things, and this is true even if the worker saves every dollar earned. To save is merely to shift demand to others, and the shift of demand capacity could be to borrowers, children, grandchildren, favorite charities, or businesses that the saver invests in. The main point is that production is always and everywhere an expression of demand.

In short, Trump is harming every American worker to protect a microscopic percentage of workers.

Considering the above in terms of Trump’s actions vis-à-vis China, he’s raised the cost of work. Though he’ll defend the tariffs as an attempt to protect “American jobs,” the reality is that every American will pay for Trump’s faux attempt at compassion. Indeed, assuming any jobs can be saved thanks to the tariffs, what Trump forgets is that there are 330 million Americans. And whether they work or not, their capacity to demand is an effect of work—by definition. In short, Trump is harming every American worker to protect a microscopic percentage of workers. Sadly, it gets worse.

Importance of the Division of Labor

A division of labor doesn’t put us out of work as much as it frees us to specialize in the form of work most commensurate with our talents.

Forgotten by Trump is the simple truth that the division of labor is arguably the most powerful economic concept in the world. A division of labor doesn’t put us out of work as much as it frees us to specialize in the form of work most commensurate with our talents. Picture a near-deserted island: if two people are dividing up work on the island, the arrival of eight more won’t render the original island inhabitants unemployed. It will just mean that ten people will produce exponentially more than two simply because the addition of eight new able-bodied people will free all ten to specialize even more.

What works among ten on a near-deserted island works even better among the world’s inhabitants. Our trade with China doesn’t put us in breadlines as much as the addition of hundreds of millions of new “hands” to the workforce means that we’re increasingly able to shine in the workplace. Trade leads to “job destruction” only insofar as our work becomes more and more associated with our skills.  Reducing all of this to the absurd, New Yorkers aren’t impoverished because they “import” food raised and grown around the world; rather their ability to import food and all manner of goods and services produced elsewhere means they can do the work that most amplifies their unique skills and intelligence.

When we import we’re not being “taken advantage of” as much as we’re taking advantage of an opportunity to be experts in our chosen line of work. If Chinese imports harmed us economically, there would be very few Chinese imports.  Remember, imports are a certain effect of production. That we’re the biggest market for Chinese production is the surest sign that it benefits us.  So while $50 billion in tariffs is not likely to noticeably disrupt the global division of labor, it won’t enhance it. And because it won’t enhance it, workers won’t be better off.

Imports always improve us. Always. They do because they increase the rewards for work while enabling the specialization of it.

Imports always improve us. Always. They do because they increase the rewards for work while enabling the specialization of it.

About all that’s been written so far, some will disagree. Even though the history of mankind has always been about heroic men making it progressively easier for us to serve each other while dividing up work with one another (think bridges, cars and airplanes, along with computers and WiFi), some will defend governmental attempts to figuratively dynamite bridges, cars, airplanes and computers. They’re free to be wrong.

The Foolish Nature of Tariffs 

Still, they might stop and think about how foolish tariffs are even if they disagree about the genius of labor division and import. That’s the case because in slapping tariffs on Chinese goods, Trump is creating yet another revenue stream for the federal government. A government that already spends $4 trillion per year to the economy’s detriment, will get an extra $50 billion. The taxes raised will give the feds even more control over the economy’s resources, including greater control over the most important economic resource of all: we, the American people.

Forever unseen will be the companies never formed, the individuals never employed, and the life-changing advances that will not be funded so that Trump can strike at China. You see, in taxing our work and our ability to specialize, Trump is making sure to injure us in a third way through increased tax collections. All to allegedly harm China…

Reprinted from RealClearMarkets.

Further Reading

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