The use of tariffs in the United States dates back to the literal beginning of our nation.  President George Washington signed the Tariff Act of 1789 as the first major piece of legislation passed by the first Congress.  Championed by Alexander Hamilton, it was both to raise revenue and, more relevant today, to address American manufacturing weakness and to seek to level the playing field.  Nearly 230 years to the day from Washington’s signature, the United States again finds itself at a disadvantage.

Positioned atop of what has been a very active news cycle, is President Trump’s proposed tariff increases on goods imported from Mexico.  At its core, the proposition would utilize financial pressure as a tool to combat Mexico’s inaction when it comes to the crisis on our borders.

President Trump intends to levy a five-percent tariff on all goods being imported from Mexico effective June 10 (as of the date of this writing).  The tariff will escalate over the next four months, ultimately hitting 25% if nothing changes in the Mexican government’s border policies. The tariff imposition has generated outrage from several different directions including Democrats, establishment Republicans, libertarians, and other Western nations.

I along with many others who support a strong United States, think that leveraging tariffs as a tool to impact foreign policy is a savvy strategy in certain circumstances. The fact of the matter is we need more winning and less whining. 

Let’s take a look at the two big players in this controversy, China and Mexico, by using 2017 data from World Trade Bank and United Nations.  In that year, the United States imported $317 billion from Mexico and $526 billion from China.  Meanwhile, in the same year, the US exported to Mexico $243 billion and to China $129 billion. The same data indicates that overall, Chinese tariffs on American imports are higher than are ours on Chinese imports, with the Mexican situation slightly the reverse.

The problem, however, runs deeper than simple tariff rates and our politicians know that.  It even goes beyond the raw trade imbalance numbers, although those are very significant and telling. Through existing policy, the United States has been taken advantage of for decades, either by nations who cheat economically, or who use trade with America as a way to compensate for other ill-intentioned acts like XXX.  

The Chinese have used their economic opening with the United States to increase leverage inside our country (they own over $1.1 trillion of US debt), expanding their sphere of influence globally, and gaining access to and then stealing vital technology.  Napoleon famously warned to “let her sleep” with regard to China.  Well, China is wide awake and she is moving the world.

Mexico, which lies somewhere between a sovereign nation and a collection of feudal drug states, has been dumping both products and people into the US for decades.  The country takes advantage of both our humanitarian nature and our appetite for consumption – case in point; Mexico was the recipient of nearly $300 million in US foreign aid last fiscal year alone.

What started as compassion and cooperation with other nations is now our Achilles heel. By negotiating with other nations in good faith on both trading and non-economic issues, we have been taken advantage of.

Enough is enough.  Republicans indicate that they may have enough votes to stop the President’s tariff plan for Mexico but offer no additional solution to the fiasco.  And as we turn our eyes towards China, it is critical to remember that they as a nation have exploited US “free trade” policies to their own very strategic and very nefarious advantage?

Libertarians draw “Smoot Hawley” like automatic political handgun.  They say that the president is leading us into another Great Depression like Herbert Hoover did 90 years ago.  This is, and always has been, a myth.  The Great Depression was caused by a contraction of the money supply; not tariffs.  Today, with a much larger global economy and greater access to substitute goods, the selective use of tariffs in anything beyond the very immediate term is certain to be less disruptive than it even was in 1930.

It would do us all well to remember that tariffs are not just an economic policy with a bad name, they are a fulcrum for the application of international trade and diplomatic leverage that a powerful nation can and should use with authority given the right circumstances.

Post A Comment