As the culture wars have dominated the political debate in recent years, it feels as though the quality of the economic policy discussion has suffered. Some of the economic topics that keep coming up are of little interest to most voters, and are being talked about in a way that is disconnected from reality. Here's an illustration from a recent speech by former president Trump, in which he makes reference to some events in U.S. tariff and economic history:
Under my leadership, America will encourage domestic production instead of punishing it. As you know, our country's vast manufacturing wealth was created at a time with very little domestic taxation, few regulations, and most revenue came from tariffs from other countries. That was when we were at the wealthiest ever. Proportionately, we were the wealthiest country ever during those days. That was before income tax came along. Now we foolishly do the opposite. We impose lower tariffs and no tariffs on foreign producers. We have the lowest tariffs of any nation in the world, and we relentlessly punish our own companies for doing business in America. You do business in America, you're punished tremendously. I had many, many companies come to me, sir, I can't compete. They're sending kitchen cabinets, washers and dryers, everything ... motorcycles, they're sending them here, sir, we can't compete. And I made it so they could compete and thrive. Every one of those people, we should get them up and talk to you one day, because every one of those people comes up to me, and every time I see them, they hug me, they kiss me, they love me, because I saved their businesses.
I intend to reverse this model and once again turn America into the manufacturing superpower of the world. We can do that just with being intelligent. The key to this effort will be a pro-American trade policy that uses tariffs to encourage production here and bring trillions and trillions of dollars back home. ... My plan is that if you open your factory in Wisconsin, Pennsylvania, Michigan, Minnesota, anywhere else in our country, you don't pay a tariff tax, you don't pay a tax. You make the product here. But if you move your production outside of the United States and send it back here, which people are doing now, and I stopped it, stopped it cold. But they've changed that already. Then you'll have to pay a very substantial tariff to get your product back into the country. The result will be that everybody in the world will want to be here, and they'll want to produce here. They're going to want to produce their product in America. It's going to say made in the USA. We will be able to build ships again. We will be able to build planes again. We will be able to build our military again from within, all from within. We will create the biggest, greatest and strongest middle class in the history of our country. We will have 10s of millions of high paying jobs in manufacturing, transportation, defense, as well as all of the sales and support of export jobs. Our auto industry will be the biggest beneficiary.
In short, it will be a national economic renaissance just by using our heads, by being smart, by not letting other countries take advantage of us. They've been doing it for so long. It's so sad to see, and I know them all, and they laugh at us behind our back. They can't believe how stupid our leadership has been for so many years.
We will ensure that the United States has a giant steel industry, and aluminum industry, a manufacturing base and a defense base. We want a industrial base that can take care of our defense needs 100%.
And you can call it what you want. Some might say it's economic nationalism. I call it common sense. I call it America first. This is the policy that built this country, and this is the policy that will save our country. In the words of a great but highly underrated president, William McKinley, highly underrated, the protective tariff policy of the Republicans has ... made the lives of our countrymen sweeter and brighter. It's the best for our citizenship and our civilization, and it opens up a higher and better destiny for our people. We have to take care of our own nation and her industries first, in other words, take care of our country first. This is when we had our greatest wealth. He was assassinated, and he left his group of people that followed him. Teddy Roosevelt became a great president spending the money that was made by McKinley. So McKinley got a bad deal on that one. He built tremendous wealth.
They had the Tariff Act of 1887, and they had a committee that studied, what are we going to do? They had a big problem, a problem like I hope to have with this country someday, so much money was coming in from foreign countries that they didn't know how to spend it. They had no idea. So they set up a committee. We'll set one up with the people in this room. How do we distribute the wealth that we have? And Roosevelt built dams and built railroads and did national parks, but he did it with the money that was made with tariffs from McKinley. So you have to remember that very highly underrated, a very underrated president, let's give them both credit. Smart tariffs will not create inflation. They will combat inflation. I had almost no inflation, and I had the highest tariffs that anyone seen. They were going a lot higher. Foreign nations will pay us hundreds of billions of dollars, reducing the deficit and driving inflation down to largely reduce our deficit. In my first term, we imposed historic tariffs with no effect on consumer prices or inflation.
The anti-tariff people, many of them, I believe, honestly, work for these other countries in some form, get tremendous amounts of lobbying money and other money, because it doesn't make sense what they're saying.
As you might expect, I have some reactions. It's hard to know where to start with this, but maybe let's go with McKinley's tariffs, which Trump has been talking about for many years. One thing to note here is that the McKinley Tariff took effect in October of 1890 while McKinley was in Congress, whereas during McKinley's presidency the big tariff increase was implemented through the Dingley Act in 1897. It's not clear whether Trump realizes this. Anyway, some people have studied these issues in great depth. In Clashing over Commerce, Doug Irwin points out that Teddy Roosevelt, who Trump mentions, was not happy about the impact the McKinley Tariff had on the tariff-supporting Republican party in the 1890 midterm elections, saying: "The overwhelming nature of the disaster is due entirely to the McKinley bill." (Irwin also notes that "[t]he perception that high tariffs protected monopolistic big businesses and trusts also contributed to the unpopularity of the McKinley Act.")
With regard to Trump's references to the relative wealth of the U.S. during that period, for anyone who has this sort of nostalgia, there are some things you may want to consider because they complicate the more simplistic hot takes. For those on the right who are anti-immigration as well as being protectionist, keep in mind that this was a period of very open immigration, which helped drive economic growth. And for anyone who likes Social Security and Medicare, note that those programs didn't exist at the time, which is why the relatively low amount of revenue brought in by tariffs could fund the much smaller level of government spending from this period. If Trump wants the tax system to rely on tariffs for revenue rather than on income taxes, that would almost certainly mean the end of those programs.
Turning to the impact of Trump's first term tariffs on U.S. prices, Trump says they had no impact, but numerous economic studies show otherwise. (And obviously "foreign nations" don't pay tariffs, but rather importers do.)
As to whether the U.S. has the "lowest tariffs in the world," the WTO tracks this data. I would first note that New Zealand, Australia and a few others actually have lower MFN applied average tariffs. In addition, it's worth noting here that trade remedy tariffs don't get tracked as part of this calculation, and with the U.S. being such an active user, I'm not sure the U.S. tariffs would look as low in relative terms if trade remedy tariffs were included, although I haven't seen a calculation that takes this into account (it would be great if someone did one!)
On the issue of the role of lobbyists in trade policy, just about all policies have lobbyists on both sides, but I don't think there is much doubt that it is lobbyists (corporate and union) that are the driving force pushing for tariffs. It's nice for them that Trump believes in their cause, and may save them some lobbying money, but it's pretty clear that lobbying is and has always been the main source of support for tariffs.
And finally, there's the matter of retaliation by other countries, which happened before with Trump's tariffs and will happen again. Trump seems to think the U.S. could start exporting more manufactured goods such as autos (which does not seem particularly likely at the moment), but regardless of whether the U.S. production and export mix shifts away from agriculture, natural resources, and services and towards manufacturing, U.S. trading partners will have plenty of possible targets for retaliation.
There was also this:
China was built on doing exactly what we're going to be doing, and what I started doing four years ago. What we're putting forward is the most pro-American manufacturing and jobs policy in modern history for any country. This plan will bring jobs and growth into our country at levels never seen before. Every business on earth will flock to America, from Europe, Asia, the Middle East and all over the world. By contrast, comrade Kamala Harris wants to sacrifice our wealth, kill the economy and drive jobs overseas to punish businesses, more businesses will leave.
So on the one hand, Trump admires what he thinks are the tariff policies of the Chinese Communist Party and wants to emulate them (although in reality, China actually reduced its tariffs considerably as part of its accession to the WTO), but on the other hand he is suggesting that "comrade Kamala" is a communist. That's a hard one to get my head around.
