Trump's 'over-the-top' tariffs will thrust the US back into an era of economic shocks, thank tank expert says
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- Trump has promised to implement tariffs on virtually all US trade, and use them to replace the income tax.
- But the US already has a history of implementing broad-sweeping tariffs, PIIE's Steven R. Weisman said.
- He said such policies have taken the US close to bankruptcy, and unleashed an era of economic shocks.
Donald Trump's preference for tariff policies has been on full show during the election cycle, with the Republican candidate pledging to tax virtually all US trade.
But to Steven R. Weisman — a vice president with the Peterson Institute for International Economics — a look through American history shows why this could prove reckless. If a Trump White House imposes "over-the-top tariffs," it could return the country to a much less stable era, he wrote in an op-ed for the New York Times.
"Overreliance on tariffs helped foment an era of economic shocks," he, outlining an entire policy timeline.
His comments contradict Trump's perspective, with the former president frequently touting tariffs to solve US economic problems.
If elected again in November, he has pledged to implement a 10% universal trade tax on virtually all US imports, although Chinese goods would face rates as high as 60%. Separately, Trump has also offered tariffs as an alternative to the US income tax.
This isn't an untested approach, Weisman said. In fact, tariffs were the main source of federal revenue until 1913, when the 16th Amendment granted Congress the ability to collect an income tax.
It's with good reason the US switched, he added.
"An across-the-board tariff policy would take us not to a prosperous future but to a reactionary past that stopped working in the 19th century, where it nearly bankrupted the government, aggravated class conflict, provoked instability and favored the wealthy over everyone else," Weisman wrote.
For instance, one of the leading pushbacks to Trump's income-replacement idea is that tariffs simply cannot produce as much revenue — a point proven by the Civil War, he noted. During the conflict, tariff-revenue insufficiencies threatened a fiscal crisis, pushing Congress to pass America's first, albeit temporary, income tax.
Although World War I again highlighted the shortcomings of relying on tariffs, Weisman cited that America still re-embraced them by 1930. According to him, wide-sweeping trade barriers were seen as an effective shield for domestic industries and agriculture.
"Instead, they fueled a catastrophic global trade war, strangled commerce, unleashed competitive currency devaluations and intensified a worldwide depression that contributed to the rise of Nazism and wordwide war," he summarized.
Trump, too, argues that protectionism is best for American workers and farmers, but Weisman sees the benefits as marginal at best.
He offered an example: Where tariffs could diminish foreign competition in the steel industry, domestic manufacturers also depend on steel imports. And when trade barriers rise, access to these materials can decline.
Weisman also noted that Trump's perception of tariffs as a cure-all for trade imbalances is misguided, a point proven by Trump's recent history.
When his previous administration used tariffs to try to reduce the trade deficit with China, it had to pay $23 billion to bail out farmers when Beijing retaliated, he said.