The politics of a protective tariff don't work for Trump

The costs of a protective tariff are immediate and traceable, while any benefits are long-term and diffuse.

Since the election, the self-proclaimed Tariff Man has been extremely active.

During the campaign, Donald Trump said that he would impose a 10% or 20% tariff (he vacillated between the two figures) on all imports except those from China. Chinese tariffs would be set at 60%.

Since winning in November, Trump has issued additional tariff threats to numerous countries.

Canada and Mexico were threatened with a 25% tariff, and China with a 10% one, if they didn’t do more to combat illegal immigration and fentanyl smuggling.

The BRICS club of developing countries was threatened with a tariff of 100% if they moved away from the dollar as a reserve currency. That was peculiar since two of the BRICS countries, Russia and Iran, are subject to sanctions intended to prevent them from accessing the dollar international financial system. And China, which Trump had already threatened with high tariffs, is the only BRICS country with a large volume of U.S.-bound exports.

The strangest Truth Social tariff thunderbolt, however, was one directed at the European Union. Trump said he would impose tariffs of an undisclosed amount if EU countries didn’t purchase more natural gas from the United States. There is no reluctance on the part of European countries to purchase American gas. In fact, after weaning themselves off dependence on Russia, there is an eagerness to do so. To the extent there is an artificial constraint, it is export limitations imposed by the Biden administration, which Trump can lift when he actually gets into office.

How all these tariff vows and threats correlate and coordinate is unclear. As is what Tariff Man is really attempting to accomplish with them.

The post-election tariff threats seem to be in the form of attempted leverage to obtain a limited, discrete end: greater action on illegal immigration and fentanyl smuggling; sticking with the dollar as a reserve currency; buying more U.S. natural gas.

However, the campaign vows of universal tariffs on all imports seems to suggest support for a protective tariff as a form of industrial policy, an abandonment of free trade irrespective of what other countries do.

What Trump has said about the Biden era subsidies for computer chip manufacturing also suggests support for a protective tariff as a long-standing industrial policy, not as leverage to wrest trade concessions from other countries. According to Trump, subsidies aren’t needed to foster a more robust domestic chip manufacturing capacity. A tariff imposed on imported chips will do the job.

Trump has a point here. If domestic manufacturing capacity of whatever sort is to be artificially boosted, tariffs are preferable to subsidies. That’s because they treat all domestic producers alike, including new entrants. That fosters superior domestic competition than government handouts of various sizes to incumbent producers.

Trump’s fixation with tariffs has launched extensive discussion and debate about the merits and demerits of tariffs, either as an attempt at leverage or as a long-standing industrial policy. This column isn’t about that, but it’s probably worthwhile to state where I land on the merits. I think that the United States should seek to insulate our economy from China’s state capitalism to the extent possible, including through the use of tariffs. Other than that, I’m a free trader, particularly with other democratic countries with market economies.

However, there is something about the politics of a protective tariff that is perplexing: they won’t work for Trump, given his proclivity for instant political gratification. The costs of a true protective tariff will be immediate and easily traceable to the policy. Any benefits will accrue over time and their cause will be diffuse and arguable.

A true protective tariff, such as Trump advocated during the campaign, will quickly increase prices and disrupt supply chains.

Who ends up paying for a tariff is a more complicated matter than either proponents or opponents tend to acknowledge. Some of it will be absorbed by the businesses doing the exporting; some by the businesses doing the importing; and some will be passed on to consumers in the form of higher prices. The proportion borne by each will differ product to product, depending on elasticity of demand for the product and the availability of substitutes. However, some prices will rise for consumers already feeling raw from a bout of elevated inflation that has proven persistent. Critics will be able to point a finger, legitimately, at the tariffs, and shift part of the inflation blame to Trump.

The consequences of supply chain disruptions are less easy to predict. But they could be severe, including at least temporary layoffs from domestic producers depending on foreign sources for inputs. Concern over supply chain disruptions led to fairly generous exemptions being granted to the tariffs imposed during Trump’s first term. Again, politically, any adverse consequences from supply chain disruptions will be immediate and easily attributable to the tariffs.

The argument for a protective tariff is that, over time, it will lead to more robust domestic manufacturing capacity, with benefits for workers and communities that exceed the benefit to consumers that the competition from imported goods might bring.

Let’s assume, for the moment, that a protective tariff has that effect, even though there are ample grounds to doubt it. Increased domestic manufacturing capacity doesn’t occur overnight. It would take years before there would be enough of a difference to be politically noticeable and consequential. And attributing any increased manufacturing capacity to the protective tariff wouldn’t be straightforward. There has already been a movement in some sectors to off-shore less. And there will be tax and regulatory policies also in play. There will be plenty of room for argument about where to apportion the credit.

Trump clearly likes playing Tariff Man. But is he really ready to take the blame for higher prices and supply chain disruptions in the short-term, in exchange for the possibility of partial credit for an uncertain expansion of manufacturing capacity in the long-term?

There are those in the populist right who understand this dynamic and are willing to run the short-term political risks of a protective tariff for what they regard as the longer-term national benefits. I doubt that Trump is one of them.

So far, in public pronouncements, Trump denies that these policy and political trade-offs exist. According to Trump, exporters will pay the full cost of the tariffs. The increased domestic manufacturing capacity will be instantaneous.

Perhaps Trump believes that, in which case he is headed into rocky political shoals. Perhaps he understands the reality, in which case he may erect the facade of a protective tariff, then generously grant exemptions, as he did in his first term.

At some point, however, after Trump actually becomes president, playing Tariff Man is going to be less of a political joyride.

Reach Robb at robtrobb@gmail.com.