A defense of Trump's tariffs

Plus, ABC's payoff, and an update on drones

As the volcano god worshippers said when they reached the cauldron of Kīlauea, let’s jump right in. I don’t like tariffs, as a rule. There’s all kinds of reasons why they are not good for commerce. They spark inflation; they don’t necessarily improve “buy American” goods or increase investment by U.S. manufacturing firms. They cause tit-for-tat tariff wars with trading partners. As explained by history Youtuber Matt Beat, there’s many reasons to dislike tariffs. But not all tariffs are inherently bad for all purposes.

Image source: DALL-e

Let’s start with taxes. Originally, the only way the federal government had to collect money was by tariffs. There was no income tax, no corporate tax per se. There was only a duty of goods shipped and received to and from our shores. And of course, there was debt. There’s always been debt.

There’s now probably a thousand ways for the government to bill you and extract your money. Direct or indirect, everyone pays the federal government. Income tax, gas tax (which is a sales tax), FCC “universal service fund”, fees on air travel, and the death tax are just a few of the myriad ways the government gets our cash. Tariffs are paid by American consumers because tariffs are literally a tax on goods, and goods are made into products that are sold to consumers.

As taxes go, tariffs are not really an effective way deal with raising revenue for the cash-hungry federal government. The fundamental underlying assumption of using tariffs for money is that American industry is heavily reliant on importing goods to make finished products or to sell those goods directly to Americans. “Made in America” products are not taxed in a tariff system, so presumably Americans get there American stuff tax-free. If the U.S. was, theoretically, 100 percent self-sufficient, the federal government would collect no tariffs because we would import nothing. So, to maximize revenue, the government would want to see a large amount of goods imported, but of course, supply and demand dictates higher prices and therefore lower demand. Tariffs just don’t work well for revenue unless it’s for things that are both needed and not made here.

That was the case when America was very young, and the reason Alexander Hamilton favored tariffs, for a time. Those tariffs were not a bad thing, they were a measure to help the U.S. get on a better footing for industrial competition with old England.

In the modern world, with global corporations and supply chains, tariffs are not a particularly good way to build the American industrial base. That’s because the main costs associated with making things in the U.S. are not the price of the raw materials (unless you’re talking about oil, but even then it’s complicated)—the main cost is labor and compliance with a host of other regulations.

Next, there’s trade. Since the Supreme Court decided Wickard v. Filburn, a terrible decision that gave the federal government powers it was never intended to have (like telling farmers they can’t grow crops for their own use if those crops could have been sold on the market), the feds have put their hands deeper and deeper into the pockets and business of American businesses.

The Tax Foundation recently calculated that the cost of compliance with IRS regulations is $546 billion, an amount that puts it to the left of the decimal point—2 percent—on our GDP. This is money, both direct and indirect, that individuals and businesses spend just to pay, or avoid paying, taxes. A National Association of Manufacturers study showed that manufacturing firms pay an average of $29,100 per employee in compliance costs dealing with federal regulations, of which environmental regulations make up nearly 20 percent.

The Cato Institute calculated that costs of compliance have increased by about 1 percent annually (adjusted for inflation) from 2002 to 2014. In 2014, regulatory compliance cost between 1.3 to 3.3 percent of total wages. The federal government has a toolbox full of very large hammers, and to regulators, everything is a nail.

It’s more expensive to build things in the U.S. because Americans have the highest standard of living in the developed world, for a country our size. We live well, and we’re not willing to “live down” to a wage where the items we consume are affordable and also made here. Also, Americans like clean water, clean air, paved roads, and big airports. We like government that is mostly free of corruption and graft. Our infrastructure is not perfect, and there’s plenty of inefficiency, even some graft (look at Chicago), but we are not in the same league as Mexico, or Nigeria, or China.

The main reason Trump tariffs might not be the worst possible thing in the world is because they might be teamed with an overall reduction in other compliance costs. The good thing about tariffs is they are fairly simple to calculate. A reasonably knowledgeable employee with access to supply chain and logistics data can do it using an Excel spreadsheet. Take the amount of the tariff, calculate it into the cost of finished goods, and raise prices accordingly. That’s a very simple calculation, and requires no giant infrastructure for compliance. Pay to play.

Other compliance costs, especially EPA, FTC, IRS and myriad other agencies who need their ten pounds of paperwork completed before they send you a bill, have a much more complex fabric behind them. Changing commerce regulations and approaches is unpredictable and potentially devastating to small to medium-sized businesses that don’t have a deep legal department. For the bigger companies, these regulations drive decisions on where to invest in infrastructure, plant and equipment, and where the regulatory environment is cheapest.

In my day job, I recently got an assessment from the IRS regarding the ACA—Obamacare. Because of a data filing error, they wanted to assess tens of thousands of dollars. All I had to do is correct the data (which was calculated by a payroll processor) and resubmit. I did the calculations, from 2022 mind you, and returned the forms. Fax was the only option to file. A call to the IRS number yielded interminable voice menus with no way to talk to a human. The website and phone tree indicated that the IRS is years behind in processing ACA assessments. I imagine that most of these are simple data issues like happened to me. But some companies might end up paying. Even if everyone paid, I suspect the IRS is losing money doing these assessments.

Imagine that situation, but a hundred times more complex, and over tens of thousands of companies dealing with environmental, trade, and labor regulations. These regulations strangle business. Tariffs would be a welcome breath of fresh air if those regulations went away. You know what you pay for overseas imports, and you calculate the tariffs. Risk management becomes easy. There’s no surprises.

Of course, the negative effects of tariffs—trade wars—may destroy your export market, but so can all the other trade regulations thrown off by the massive federal leviathan. At least with tariffs, the calculations are straightforward.

Tariffs are not a terrible way to get other countries to play fair, or to work through diplomatic issues. From what I have read, Trump’s threats on tariffs for Canada and Mexico are to get them to deal with border and drug issues. If Mexico does more to stem the flow of illegal immigrants and fentanyl across our southern border, Trump may not follow through on his threat. Same with Canada. I suspect that’s what will happen.

As for China, our tariffs (which include the Biden administration’s tariffs) serve to deal with the PRC’s market manipulation, theft of intellectual property, and spying on us, nevermind weaponizing certain technology we don’t want them to have. A universal tariff on Chinese goods will harm our economy, but it will harm theirs more, at least in the short term. American companies will find a way to get the goods they need from other nations, where those goods were imported and made into partially-finished products. That’s a matter of logistics and spreadsheets.

If Trump thinks his tariffs will lower prices of goods for American consumers, while making “American made” happen, he’s delusional. But the companies who have to live with the incoming administration know that perhaps Trump’s federal agencies will ease up on the rest of the cost of compliance, which will cost a whole lot less in terms of risk. In that sense, it’s not so bad as it seems.

I’ll take the tax I know I have to pay and is simple to calculate, over the surprise form and hours of research to figure out all the other stuff the feds, under New Deal leadership, throws at me.

ABC agreed to pay Donald Trump $15 million in a settlement over something political hack George Stephanopoulos said on-air last March. I agree with Erick Erickson on this: it’s not a “cost of business” for ABC News. The settlement is the price extracted to avoid discovery in a case ABC would rather not litigate. Who knows what Trump’s lawyers would uncover in perusing ABC’s internal communications? Well—ABC’s (Disney’s) lawyers know, and they’re scared enough of it to pay $15 million to their frenemy for the privilege of making bank by attacking him for the next four years.

Drones. If you haven’t read David Thornton’s piece on drone sightings in New Jersey, do that now. What I’ve seen is most of these are either airplanes, helicopters, or even a planet. People are freaking out because they like to join freak-outs. Sure, maybe there are some drones in the skies over New York and New Jersey. New York Gov. Kathy Hochul said she’s going to get to the bottom of it. More power to her, I wish her luck. And if she finds the mothership, may she get on board and be our ambassador to whatever aliens she finds.

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