Let me say, up front, that I do not know if Trump’s tariffs will accomplish his purposes or not. Tariffs are common in human history. Some tariffs, in some places, and at certain times, have had some benefits to a country’s economy. Other tariffs have been utter disasters. What few Americans know is that tariffs were a major cause of the two greatest calamities in our history—the War Between the States and the Great Depression. Usually, tariffs don’t produce those kinds of calamities, but they have.
Countries often use tariffs to protect certain domestic industries, and have done so with success. For example, when I lived in South Korea back in the 1990s, it was almost impossible to see any car on the road except a Kia or Hyundai. The South Korean government put outrageous tariffs on foreign cars, and the purpose was obvious—to encourage Koreans to buy Kias and Hyundais, which Koreans did. Kia and Hyundai are very successful world car companies now, thus, from the standpoint of the Korean government—and Kia and Hyundai—those tariffs are considered a roaring success.
Of course, the offshoot of that is that tariffs hurt consumers. Koreans might have been able to buy foreign cars, without the tariffs, cheaper than they could have bought Kias and Hyundais. Thus, Korean consumers suffered by having to buy the higher priced automobiles.
But there is a further, hidden cost to tariffs that nobody sees. I’ll use American dollars for the readers’ sake. Let’s suppose, in Korea, a Ford, without the tariff, sold for $20,000 and the Kia for $25,000. Most people would buy the cheaper car, not what the SK government wanted. Thus, by adding the tariff to the Ford and pricing it out of most Korean consumers’ reach, the people bought the Kia for $25,000. That meant $5,000 they no longer had—if they could have bought the tariff-less Ford—to spend on other products. This cost of the tariff was never noticed because it is money that was never spent in other areas. Koreans weren’t able to patronize other businesses, which were thus hurt, though such could never be measured, because individual Koreans had $5,000 less to spend. Good for Kia and Hyundai, bad for the local kimchi restaurant.
But it is difficult to deny that Kia and Hyundai, and many subsidiary businesses in Korea (those that service those two companies) were benefited by the tariff. That, no doubt, is part of what Mr. Trump hopes to accomplish with his tariffs.
I said earlier that tariffs can be bad, too (I just indicated a couple of ways they are, i.e., raising costs to consumers, hurting business not directly involved in the tariff), but I made the statement that tariffs played a major role in the two greatest disasters in U.S. history, our War Between the States and the Great Depression. The war first.
For all of the first 70 years of American history, North and South argued, and compromised, over the tariff. The North, moving into shipping and especially industry, wanted a high tariff to protect against the cheaper, more well-established goods, coming in from Europe. The South, nearly totally agricultural, wanted as many cheap European products as they could get, and demanded a low tariff on those goods. The two sections argued about it ceaselessly, and South Carolina almost seceded (and started a war) in 1830 over what it called the “Tariff of Abominations.”
Finally, the Republican Party, which was totally a northern party in 1860, won the presidency and both Houses of Congress, and immediately passed the highest tariff in American history to that point. The Southern States (seven of them) seceded. Yes, they feared the Republicans in Congress would try to use their power to abolish slavery (something Lincoln made very plain he believed he had neither the power, nor the inclination, to do). Slavery wasn’t threatened by Lincoln’s election in 1860, folks; but Southerners feared a high tariff would hurt them economically. Two of the seceding southern states mentioned the tariff in their articles of secession. Not surprisingly, the Confederate States, upon forming a government, immediately passed a low tariff. Northern businesses, believing their profits—and government taxes—would suffer by losing Southern customers, persuaded Lincoln that he couldn’t let the South go: “where shall we get our revenue?” The tariff was more of an IMMEDIATE cause of the war than slavery was, which, as noted, Lincoln had no intention of trying to abolish. If I were a Democrat today, hating Trump’s tariff, I’d be using THIS as an argument: “High tariffs helped caused our civil war!” But Democrats are committed to slavery as the sole cause of the war, so they can’t back away from that now.
The other disaster, the Great Depression, was also spurred by a tariff. Most people think the stock market collapse in 1929 caused the depression, but that’s not exactly true. After the crash, the unemployment rate rose to 9 percent, but within a short time had dropped back down to 6 percent. But then, Herbert Hoover and the morons in Congress, passed perhaps the worst law in American history: the Smoot-Hawley Tariff, which helped collapse several major European banks, caused a world financial panic, and spread the depression all across the globe. Then, Franklin Roosevelt, an utter economic illiterate, was elected president in 1932, and his policies kept unemployment at double digits, often near 25 percent, until World War II. The tariff spurred the decade-long depression at least as much, if not more, than the stock market crash. A little-known fact of American history.
Trump’s tariffs? If they do what the Smoot-Hawley Tariff did, then there will be economic catastrophe. But that’s not probable. Tariffs have occasionally been good, often been bad, and only time will tell if Mr. Trump can get the fair trade he wants and which would be beneficial for all nations.
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