The floundering state of international trade policy illustrates that tariffs are like a tightly sealed lid: easy to put on but hard to undo. In the runup to the election in 2020, Joe Biden was critical of the Trump administration’s tariff policies. But now that Biden is in office, his administration seems content to leave the tariffs in place.
So why the change of heart?
Now would be a particularly good time to get rid of Trump’s tariffs, as the economy is experiencing widespread shortages and rising inflation. The tariffs, which are merely taxes on imported goods, have caused an increase in production costs for businesses, hampered economic growth and increased the prices of consumer goods. Eliminating the tariffs would help to partially mitigate the nation’s inflation and production problems.
Economists have known that tariffs are bad for the economy since 1776, when Adam Smith’s “Wealth of Nations” demolished the trade restrictionism of the Mercantilist ideology in vogue at that time. Indeed, the undesirability of tariffs is one of the few policy conclusions that virtually every economist agrees on.
The most egregious example of tariffs in U.S. history was the Smoot-Hawley tariff bill of 1930 that raised tariff rates over 50% on almost 3,200 imported products. Foreigners responded with retaliatory tariffs, and the volume of international trade fell in half. The Smoot-Hawley tariffs contributed significantly to the length and severity of the Great Depression of the 1930s. It wasn’t until 1950, almost 20 years later, that tariff rates were fully reduced to previous levels.
But why are tariffs so hard to undo? The reason is that, while tariffs make for bad economics, they can make for successful politics. Tariffs are a textbook example of special-interest politics. Although the overall costs of tariffs to Americans are much greater than the overall benefits, the costs are dispersed over a large number of consumers who have little individual incentive to oppose the policy. But the benefits are concentrated on a few industries protected from competition from abroad, which act as well-informed and motivated special-interest stakeholders that lobby for continued tariffs.
Besides their obvious economic inefficiency, the fact that tariffs are hard to get rid of is one of the main reasons not to implement them in the first place. Dare we suggest a constitutional amendment prohibiting the imposition of tariffs, quotas and other trade restrictions in the USA?
Good for the USA, good for the world.•
Bohanon and Curott are professors of economics at Ball State University. Send comments to firstname.lastname@example.org.