Tax Reform Disruptions Can Arise from Tariffs – Precedents Exist
Tariffs can be a tricky subject, it's not hard to see why. They can raise prices for consumers, which nobody enjoys, but they can also protect jobs, which can be appealing, even in times of inflation. The tension between these two aspects can be sectoral, dividing voters who work in protected industries from those who don't. It can also be regional, with voters in areas where foreign competition has impacted employment favoring tariffs, even if they're not directly affected.
Economists, by nature, are generally hostile towards protective tariffs. They understand that they can raise prices and slow growth, which doesn't make sense from an efficiency standpoint. Jobs are the only real benefit, but tariffs also cost jobs in unprotected industries, often more than they create. A 2019 Federal Reserve study found that the tariffs on steel and aluminum imposed by President Trump during his first term resulted in a net loss of manufacturing jobs.
However, for noneconomists, the bottom line isn't always so clear. Tariffs are more than just economic policy, they're political and rhetorical tools. They can appeal to certain voters because they channel anger and frustration, especially when economic analysis seems cold and heartless. Politicians like Trump understand this and use it to their advantage.
The issue with tariffs is that they cater to two different identities in voters - as consumers and as workers. Voters are consumers, and they don't like higher prices, but they're also workers, and some may see tariffs as a way to protect their jobs. This complexity has been a fixture of tariff politics since the early days of the United States.
In the 19th century, tariffs reshaped the political landscape and helped build the Republican Party, but they also slowed the arrival of the modern income tax. At the time, the federal revenue system was based on indirect consumption taxes, which disproportionately burdened the working class. Tariff policies divided the working class, making it hard for them to push for a more progressive tax system.
Today, the economic case against tariffs seems compelling, but popular opinion on the issue is far from united. Divisions among voters reflect the same tensions that shaped 19th century fiscal policy. For people who think primarily as consumers, tariffs can seem like a terrible idea, but for people employed in industries that face foreign competition, or who live in regions where cheap imports have destroyed jobs, the job protection afforded by high tariffs can be appealing.
The impact of tariffs on manufacturing jobs is complex and influenced by various factors. While they might create jobs in protected industries, they risk leading to job losses and higher costs in downstream industries, potentially offsetting any economic benefits. Ultimately, the impact on consumers and businesses depends on how many goods receive a higher duty. If many items are affected, consumers could bear significant additional costs, which might outweigh any potential job gains in the steel and aluminum industries.
- Despite the economic analysis suggesting that tariffs can raise prices and slow growth, politicians like Trump utilize them as political and rhetorical tools to channel anger and frustration within their constituency.
- The 2019 Federal Reserve study found that the tariffs on steel and aluminum imposed by President Trump during his first term resulted in a net loss of manufacturing jobs, contradicting the job protection argument often associated with tariffs.
- In the 19th century, tariffs played a significant role in reshaping the political landscape, aiding in the formation of the Republican Party, but they also delayed the arrival of the modern income tax, which disproportionately affected the working class.
- As consumers, many voters do not appreciate the potential price increases caused by tariffs, but as workers, they may be attracted to the job protection that high tariffs can provide, especially in industries facing foreign competition.
- The ambivalence towards tariffs persists, and voters' perspectives often depend on their primary identities – as consumers or as workers – reflecting the complex negotiations of 19th-century fiscal policy.
