Meet the Anthony Fauci of tariffs: Sanjeev “Sonny” Bhagowalia is the guy who has to run the collection systems that will ultimately bring $3 trillion into the treasury. Or not.
I have a question for you. Can you explain to those of us not on your intellectual plane why tariffs didn't throw the country into recession and or depression for about 130 years before the income tax?
That is a great question, and there is an answer. Three answers, really. 1) Bunker fuel. Before global shipping in all weather, sailing vessels were not efficient in bringing trade in perishable goods. Raw materials like cotton, spices, tea didn’t depend on reliable travel time. After ships could navigate the world reliably, oil, and food became the staples. And tariffs had a much bigger effect.
2) Communications. And the end of viceroy type colonialism. When third world nations started exhibiting independence, communications via cable and wireless brought faster trade and commodities futures. Therefore a collapse would have global and more pronounced effects. Tariffs became less desirable and when used, they short circuited recovery.
3) Who says tariffs didn’t cause global recession before the income tax? What do you suppose caused wars and rivalries and letters of marque and reprisal? What sparked the American revolution? It just wasn’t as quick or obvious as it is now due to reasons 1 and 2.
If I may hazard a reply, it's probably some combination of a much less rigorous and interconnected global trade system (countries largely made what they needed internally), and an agricultural and industrial economy that served MANY fewer people. Agricultural techniques were much less sophisticated (and less efficient) and the goods produced by factories were cruder, with a more limited Bill of Materials that could be fulfilled domestically. Tariffs in that economic world would have much less day-to-day impact, as we were not importing as much and a good deal of the labor cost was born by children working in farms and factories.
The modern economy couldn't be any more different. We have extremely efficient, but technologically and materially-demanding agriculture to feed a MUCH larger population on the same amount of land. The items produced by our factories require many more items on their Bills of Materials than can be acquired domestically for a cost that keeps the price reasonable for a large enough market. And on the labor front, we've pulled out children out of factories, automated a lot of our agriculture, and taken advantage of other labor markets willing to product things like clothing and shoes for paying competent adult workers more than we'd pay children.
You can't reintroduce tariffs from a 130 years ago and not expect to keep the costs and standards of living of 0 years ago. The entire domestic and global economic apparatus is designed and optimized for free trade in ways that 1776-1915 never was.
I would also add that from 1776-1915, America was a MUCH different nation immigration-wise. Unless you were from a group specifically excluded (such as the Chinese later on), if you were an able-bodied healthy adult looking for a new life, America's shores were open to you.
That's not to say that such life was easy - you'd be starting at the very bottom of the economic totem pole clawing your way up it - but you didn't have to worry about ICE or deportation, and all that nonsense. That allowed the US to import cheap labor in a way that it still does - at least as undocumented workers that we tolerate, instead of chasing out the same way we're chasing out anti-Israel protesters.
The attempt to look at tariffs from the practical side is appreciated. Making it work is a tough job, and your questions are good ones. I think you should attempt to get answers. Your credentials are at least as good as many of the press allowed to participate in Q&A. I've been surprised at questions taken from those who are not downright hostile.
You say tariffs should not be used wantonly. Seeing as how we virtually manufacture nothing anymore in our country, using tariffs on many many imported goods should be a good thing, right?
And the things we manufacture are in line with our comparative advantage: jet engines, medical equipment, rockets, electronics, large scale infrastructure. Bringing back Big Steel and garments is not helpful to our economy.
And technically, we do produce garments here: they are either expensive, or if not then made in sweatshops (yes, we do actually have sweatshops in the US still).
Okay, now allow me to turn the question around. If tariffs are such a bad thing, why haven't they hurt those countries/economies around the world who have 30%, 50% and upwards of 100 and 200% tariffs on our goods going into their countries? Some of those, like China and Japan won't even allow our automobiles into their countries to be sold.
Helps if you understand protectionism and retaliatory tariffs, and just how poor those countries with your examples are in comparison to the US.
China in general has a "make it in China" policy that applies to basically everything: there are workarounds, but that's just China being China (e.g. authoritarian one-party hypercapitalist state) that sees conflict with the US in the future - meaning they want to get onto open source or home grown systems rather than utilize US systems. (We have done the same a bit in regards to telecom equipment, to note.)
Japan does not actually prevent sales of US automobiles. It's a matter of consumer preference, and somewhat it's driven by a reputation that US manufacturers do not care about what the Japanese market wants (more generally: cars made for the US market are not what people around the world want. They typically have smaller vehicles, and we have larger ones). Very specifically to Japan: in the mid-90s we tried selling cars there that were left-hand drive - while they use right-hand drive vehicles/roads (like the UK). That resulted in most US car makers dropping out of the market, or targeting niche segments (e.g. rich people that want to be seen driving a US vehicle).
Regarding the poor countries with high import tariffs: they're protecting their one export industry, typically speaking. Otherwise, the US could dump a bunch of product and wipe out their local industry.
But then, you could view that as a sector-specific tariff rather than a blanket one. Which really gets back to the point that tariffs are a tool to be used to protect a vital industry segment, and need to be used judiciously and not wantonly.
I have a question for you. Can you explain to those of us not on your intellectual plane why tariffs didn't throw the country into recession and or depression for about 130 years before the income tax?
That is a great question, and there is an answer. Three answers, really. 1) Bunker fuel. Before global shipping in all weather, sailing vessels were not efficient in bringing trade in perishable goods. Raw materials like cotton, spices, tea didn’t depend on reliable travel time. After ships could navigate the world reliably, oil, and food became the staples. And tariffs had a much bigger effect.
2) Communications. And the end of viceroy type colonialism. When third world nations started exhibiting independence, communications via cable and wireless brought faster trade and commodities futures. Therefore a collapse would have global and more pronounced effects. Tariffs became less desirable and when used, they short circuited recovery.
3) Who says tariffs didn’t cause global recession before the income tax? What do you suppose caused wars and rivalries and letters of marque and reprisal? What sparked the American revolution? It just wasn’t as quick or obvious as it is now due to reasons 1 and 2.
If I may hazard a reply, it's probably some combination of a much less rigorous and interconnected global trade system (countries largely made what they needed internally), and an agricultural and industrial economy that served MANY fewer people. Agricultural techniques were much less sophisticated (and less efficient) and the goods produced by factories were cruder, with a more limited Bill of Materials that could be fulfilled domestically. Tariffs in that economic world would have much less day-to-day impact, as we were not importing as much and a good deal of the labor cost was born by children working in farms and factories.
The modern economy couldn't be any more different. We have extremely efficient, but technologically and materially-demanding agriculture to feed a MUCH larger population on the same amount of land. The items produced by our factories require many more items on their Bills of Materials than can be acquired domestically for a cost that keeps the price reasonable for a large enough market. And on the labor front, we've pulled out children out of factories, automated a lot of our agriculture, and taken advantage of other labor markets willing to product things like clothing and shoes for paying competent adult workers more than we'd pay children.
You can't reintroduce tariffs from a 130 years ago and not expect to keep the costs and standards of living of 0 years ago. The entire domestic and global economic apparatus is designed and optimized for free trade in ways that 1776-1915 never was.
I would also add that from 1776-1915, America was a MUCH different nation immigration-wise. Unless you were from a group specifically excluded (such as the Chinese later on), if you were an able-bodied healthy adult looking for a new life, America's shores were open to you.
That's not to say that such life was easy - you'd be starting at the very bottom of the economic totem pole clawing your way up it - but you didn't have to worry about ICE or deportation, and all that nonsense. That allowed the US to import cheap labor in a way that it still does - at least as undocumented workers that we tolerate, instead of chasing out the same way we're chasing out anti-Israel protesters.
There were 31 recessions and depressions from 1785-1913 (32 if you count the recession that started in 1913-1914).
You can read on the history of tariffs in the US here: https://en.wikipedia.org/wiki/History_of_tariffs_in_the_United_States
And a list of US recessions here: https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
The attempt to look at tariffs from the practical side is appreciated. Making it work is a tough job, and your questions are good ones. I think you should attempt to get answers. Your credentials are at least as good as many of the press allowed to participate in Q&A. I've been surprised at questions taken from those who are not downright hostile.
You say tariffs should not be used wantonly. Seeing as how we virtually manufacture nothing anymore in our country, using tariffs on many many imported goods should be a good thing, right?
We actually manufacture a great deal, near all-time highs in fact: we just employ many fewer people to do so due to the use of automation.
This is a long-term trend dating back to the 1940s. The causes are mainly:
-Reemergence of international competition after post-war reconstruction
-Strong USD
-Cheap East Asian labor
-Automation
Manufacturing sector employment =/= manufacturing sector ouput
And the things we manufacture are in line with our comparative advantage: jet engines, medical equipment, rockets, electronics, large scale infrastructure. Bringing back Big Steel and garments is not helpful to our economy.
And technically, we do produce garments here: they are either expensive, or if not then made in sweatshops (yes, we do actually have sweatshops in the US still).
Good article from 2023 about it: https://www.thenation.com/article/archive/made-in-america-never-meant-more-ethical/
Okay, now allow me to turn the question around. If tariffs are such a bad thing, why haven't they hurt those countries/economies around the world who have 30%, 50% and upwards of 100 and 200% tariffs on our goods going into their countries? Some of those, like China and Japan won't even allow our automobiles into their countries to be sold.
Helps if you understand protectionism and retaliatory tariffs, and just how poor those countries with your examples are in comparison to the US.
China in general has a "make it in China" policy that applies to basically everything: there are workarounds, but that's just China being China (e.g. authoritarian one-party hypercapitalist state) that sees conflict with the US in the future - meaning they want to get onto open source or home grown systems rather than utilize US systems. (We have done the same a bit in regards to telecom equipment, to note.)
Japan does not actually prevent sales of US automobiles. It's a matter of consumer preference, and somewhat it's driven by a reputation that US manufacturers do not care about what the Japanese market wants (more generally: cars made for the US market are not what people around the world want. They typically have smaller vehicles, and we have larger ones). Very specifically to Japan: in the mid-90s we tried selling cars there that were left-hand drive - while they use right-hand drive vehicles/roads (like the UK). That resulted in most US car makers dropping out of the market, or targeting niche segments (e.g. rich people that want to be seen driving a US vehicle).
Regarding the poor countries with high import tariffs: they're protecting their one export industry, typically speaking. Otherwise, the US could dump a bunch of product and wipe out their local industry.
But then, you could view that as a sector-specific tariff rather than a blanket one. Which really gets back to the point that tariffs are a tool to be used to protect a vital industry segment, and need to be used judiciously and not wantonly.