President Trump takes a lot of heat – as a Republican – for being comfortable advocating for the use of tariffs.
We live in an age of free trade. For almost fifty years now, the prevailing economic theory concerning imported goods has been the simplistic statement that “tariffs are bad,” because they’re a tax on your own people, after all (not on the country of export), and “the public is always better off if goods are cheaper.”
Widening the supply base to the entire world provides the greatest opportunity to find the lowest price option for every purchase, we are told; protectionism prevents that lowest price option, raising the public’s cost of living and therefore reducing the standard of living, by definition.
President Trump has made the case – accurately and eloquently – that our 40-year-long trend of exporting much of our manufacturing, and becoming terribly dependent on one specific enemy nation, Red China, has been terribly destructive to the American way of life, especially to our working class, which has gradually lost the manufacturing base needed to employ them and give them advancement opportunity.
But still, free trade is sacrosanct; we simply must find some remedy that doesn’t call for overturning free trade.
Well, there’s a dirty little secret at the heart of that argument: it’s all a lie.
The world doesn’t practice free trade.
Well, O.K., for the most part, the U.S. does. But we’re alone.
Half a century ago or more, if a country wanted to keep foreign products out of their economy, they would set high tariff rates on them, say, ten or twenty or thirty percent of the goods’ value. Between the cost of transportation and these high tariffs, the foreign goods would be more expensive than local goods, so local goods could dominate the domestic marketplace, while cool foreign options were available to a minority of shoppers at a higher price.
Then in the 1970s and 1980s, as the economic cult of global free trade took hold, the United States and Canada and the Europeans — and so many other trading partners — lowered their average tariff rates, ostensibly embracing the free trade doctrine.
But most of our trading partners didn’t really change their attitudes. The Europeans and the British and the Arabs and the Japanese never really intended to open up their markets. They just wanted to look like they were playing along so they could participate in the UN and the WTO, the World Bank and the OECD, and all those other wonderful non-governmental and super-governmental groups with access to loans and grants and jet-setting jobs.
While lowering their import duty rates to a mere pittance – two or three or five percent of the goods’ value – these countries gradually ramped up the implementation of various mandatory bureaucratic approval processes. Economists call these things “non-tariff barriers” and they are often infinitely more costly than tariffs to an exporter who’s just trying to sell into a country with such obnoxious mandates.
Want to sell a mechanical product to any country in the Persian Gulf? Your company will need to have every model tested and approved under SASO — the Saudi Standards, Metrology and Quality Organization. In order to break into that market, you need to obtain this costly approval in advance, before you have a single sale. The big Multi-National Corporations (MNCs) can afford this process; smaller companies usually can’t. It keeps the small, unconnected businesses out of the market entirely.
Want to sell a bunch of assorted products to a distributor in Japan or Brazil? If you make them yourself, that’s fine; but if you’re reselling products you designed for a toll manufacturer to make for you, their Customs agents have the right to demand that you provide the name and address of your vendor on every such item on your invoice. “But that might enable the customer to reach out to them directly and cut me out of future orders,” we hear you say, in shocked tones. Yes, indeed. That’s the idea. So, companies in that position might be discouraged from even trying to sell into such countries.
Want to sell an electrical appliance, like a carpenter’s power tool, into Europe or Great Britain? Well, now you’ll need that product approved by Europe’s CE Mark process and the U.K.’s new post-Brexit version of it, the UKCA Mark. It’s not that much different from the UL approval that we have in the USA, only ours is optional and theirs is mandatory; your product can’t be imported without this approval, which isn’t just a matter of getting their blessing. It also requires redoing your product’s plugs and nameplate and packaging to show their required codes. Think what that means to the cost of your tooling.
These examples are just a drop in the bucket, by the way. There are hundreds of such requirements in every country. Some are reasonable, like food safety and hazardous transportation regulations; some are just costly nuisances, like requirements to print the importer’s name and address on every box. (Think that sounds simple? Imagine having thousands of packages, hundreds of customers, and a need to figure out how to manually add such labels to every single item in every export shipment at your shipping dock.
A generation ago, Europe dreamed up the RoHS standards for keeping certain chemicals out of the alloys or the bills of materials of manufactured goods, then REACH followed, then Conflict Minerals, then PFAS. There isn’t room here to explain all these requirements.
Suffice to say that all the countries that mandate these costly programs all proudly call themselves modern devotees of free trade policies, just because of their low duty rates.
These countries concoct costly new measures every few years, so that as soon as a foreign vendor gets up to speed on the last one, there’s something new – a required Authorized Representative to print on the box, or a new mark to mold onto the housing, or a new limitation on the contents of your motor, your housing, your cardboard box or your plastic clamshell. Every few years, you have to redo your product, your packaging, your documentation. They never give a foreign vendor a moment’s peace.
Then there’s the Value Added Tax. Nobody would call this a non-tariff barrier. The VAT has nothing to do with imports and exports; it’s just a business-to-business sales tax, refundable to locals as goods move from transaction to transaction. But what if your business isn’t resident in their country and you try to arrange a triangle sale (we Americans call these drop shipments or third party orders)? If you’re not from there, and you want to be a middleman between your vendor and your customer in Europe or Britain or China, your VAT isn’t refundable, so the deal will cost you another 15% or 20% or 23%, depending on the country, unless you establish a subsidiary in-country or otherwise qualify as a local. But they’d never call that protectionist.
And what does President Trump want to do? He just wants to set honest, above-board tariffs, primarily on our main enemy, China.
By the way, while we’re on the subject, China isn’t just our enemy, either. China has displaced the manufacturing of Europe, and Britain, and Canada, and Mexico, and Japan as well.
The rest of the world knows it, but they don’t want to jeopardize their respectability as ostensibly free-trade marketplaces, when in fact they’re no such thing. They secretly hope that President Trump will succeed in knocking China off its high horse. They’d all love to see China’s share of global manufacturing slip a bit; they just don’t want to be involved in the dirty business of raising tariffs. All this talk of “tariffs” just sounds so coarse when people bring up the subject at the country club. Or at the Hague. Or at Davos.
Is any of this to say that tariffs are an objective good? Certainly not. A tax is still a tax, and a proud capitalist should never be enamored of any tax.
But tariffs are a tool, a perfectly legitimate tool, at that.
And as far as protectionist measures are concerned, the tariff is infinitely more honest than the many complex, painful, and costly non-tariff barriers erected all over the world by our many holier-than-though detractors to keep American and other foreign shippers out of their well-insulated local markets.
John F. Di Leo is a Chicagoland-based international transportation manager, trade compliance trainer, and speaker. Read his book on the surprisingly numerous varieties of vote fraud (The Tales of Little Pavel), his political satires on the Biden-Harris years (Evening Soup with Basement Joe, Volumes I, II, and III), and his nonfiction book on the 2024 election, Current Events and the Issues of Our Age, all available in eBook or paperback, only on Amazon.
Image: Wellcome Images (U.K.), via Wikimedia Commons // CC BY-SA 4.0
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