Recent proponents of tariffs in the United States—including President Donald Trump—can’t seem to decide on the core purpose of their own policy: What exactly are the tariffs supposed to achieve? Their true purpose seemingly depends on who you ask—and which arguments you make against them. Tariffs are effectively being touted as a mystical cure-all for the many ailments supposedly afflicting the American economy.
To some, they are temporary: a bargaining chip meant to bring foreign nations to the negotiating table, with the ultimate goal of lowering tariffs across the board and increasing global free trade.
To others, tariffs are meant to permanently protect or re-shore domestic industries—“correcting” the US trade deficit, preserving American businesses at home and bringing back those that have moved overseas, as well as ensuring reliable supply chains of essential goods in times of crisis and preventing foreign trade partners from restricting this access.
Some claim tariffs are a punitive or retaliatory measure—intended to temporarily reprimand foreign nations who have long been “exploiting” American consumers with unreciprocated trade barriers.
Still others frame them as a permanent replacement for the income tax. Under this argument, the US government could generate revenue not through taxing their own citizens, but by imposing tariffs on foreign goods instead.
In many cases, however, tariff proponents attempt to argue on all these fronts at once—despite the contradictory nature of doing so—beginning with one argument and retreating to another once faced with sound economic reasoning. This can be quite frustrating for proponents of free trade, as it begins to feel less like a coherent case and more like a moving target, with justifications shifting to whatever feels most defensible in the moment.
In truth, this is nothing more than a textbook example of the “shifting the goalposts” fallacy. Fortunately for economically literate proponents of free trade, this is merely a rhetorical tactic rather than an economic argument. Unfortunately for them, however, many of those who argue in favor of tariffs simply don’t care.
Below I will present both the economic arguments against the above points individually as well as highlight the contradictions involved in holding multiple of these views simultaneously.
“Bargaining Chip” Tariffs
One common justification for recent tariffs is that they are merely a leveraging tool intended to draw foreign nations with high tariffs on US goods into negotiations. They are a temporary show of force meant to convince foreign trade partners to lower their tariff rates or face higher ones from the US. The idea is that this would ultimately result in lower tariff rates across the board, with US tariffs imposed temporarily to gain bargaining power and encourage trade partners to lower their rates in exchange for the US doing the same.
This was recently exhibited by the Trump administration in their policy regarding China. Tariffs were competitively hiked by the two nations over the course of a few months—to rates exceeding 125 percent—until both the US and China agreed to lower them significantly. However, both countries now have higher reciprocal tariff rates than they did before the dispute began. Thus far, this strategy—assuming it is, in fact, the strategy being employed—has backfired.
Regardless, even temporary tariffs harm consumers. They are barred from purchasing lower-cost goods from more efficient foreign producers while their respective political leaders squabble—with no guarantee of success.
Moreover, the allegedly temporary nature of “bargaining chip” tariffs stands in open contradiction to the necessarily permanent nature of tariffs intended to “revitalize American industry” or “ensure stable supply chains of essential goods.” These goals would seemingly require long-term, ongoing trade restrictions. How can one claim tariffs are simultaneously a permanent industrial policy and a temporary negotiating tactic?
“Protectionist” Tariffs
Perhaps the most frequently cited argument, the protectionist line of thinking is summarized in a quote dubiously attributed to Abraham Lincoln:
…when we buy manufactured goods abroad, we get the goods and the foreigner gets the money. When we buy the manufactured goods at home, we get both the goods and the money.
Protectionists argue that by imposing higher costs on foreign producers, domestic industries will be able to reemerge and have a “fighting chance.” As the argument goes, tariffs make it more expensive to import goods into the US and create an incentive for producers to plant their roots in American soil. According to the protectionists, this creates domestic jobs, boosts industrial growth (including bringing back companies who have previously offshored), balances the trade deficit, and provides domestic consumers with higher quality, American-made goods they just can’t get overseas—especially in times of crisis when access to these goods is critical. This is largely untrue (and misguided at best).
Tariffs do “create” jobs, but they may also destroy just as many if not more—and these jobs are necessarily misaligned with consumer preferences. Tariffs, therefore, do boost growth in some industries, but they shrink other industries. They do contribute to balancing the trade deficit, but trade deficits are neither “good” nor “bad”—they simply indicate that consumers overall prefer to import goods rather than purchase them domestically. Tariffs might result in higher quality, domestically-produced goods being offered to consumers, but consumers will pay a higher price for these goods in the future which they did not—at least through their previously-demonstrated preferences—wish to pay for. As for accessing “essential” goods in times of crisis, there are a plethora of (somewhat less destructive) alternatives to trade restrictions that would address “strategic goods” more directly—stockpiling them, subsidizing their domestic production, trade agreements with allied nations, etc.
Henry Hazlitt provides an example in his Economics in One Lesson by imagining a new tariff on imported sweaters. This tariff, if effective, would raise costs for foreign sweater manufacturers, opening the door for domestic producers to enter the market who previously could not profitably compete with them. This would result in a loss for consumers, who now must pay more for foreign sweaters or purchase them at a higher price from domestic manufacturers—if they still choose to purchase them at all.
Hazlitt concludes:
The effect of a tariff, therefore, is to change the structure of American production. It changes the number of occupations, the kind of occupations, and the relative size of one industry as compared with another. It makes the industries in which we are comparatively inefficient larger, and the industries in which we are comparatively efficient smaller. Its net effect, therefore, is to reduce American efficiency, as well as to reduce efficiency in the countries with which we would otherwise have traded more largely.
Economic fallacies aside, the protectionist tariff argument is mutually exclusive with a temporary “bargaining chip” tariff or a temporary retaliatory or punitive tariff—as tariffs must be implemented permanently to continue propping up the targeted domestic industries long-term. That these arguments are often cited in the same breath is a flagrant disregard for both economic reasoning and non-contradictory logic.
“Retaliatory” or “Punitive” Tariffs
Proponents of the idea that tariffs should be temporarily weaponized against foreign nations to punish them for imposing tariffs on the US implicitly acknowledge that tariffs are harmful—at least for the nation on which they’re imposed. They ignore, however, that tariffs harm domestic consumers too. As explained above, even temporary tariffs distort market signals, strip away consumers’ access to cheaper imported goods, and tie up capital, labor, and entrepreneurship in illegitimately upheld industries—likely only escalating trade tensions in the process.
And once again the tariff proponent has committed himself to a logical contradiction. The temporary retaliation or punishment in the form of a tariff cannot be so if the tariff also stands to permanently protect domestic industry and/or replace the income tax.
Tariffs to Replace the Income Tax
Permanently replacing the income tax with tariffs would, first and foremost, incentivize a monumental effort on the part of the US government to increase imports (and therefore tariff revenue)—precisely the opposite measure advocated by the protectionists who wish to balance the trade deficit. Doing away with the income tax would also require an act of Congress to restrict themselves (highly unlikely). This is also a risky maneuver for the US government as it would strip away much of their ability to control their own sources of revenue—leaving this control largely up to the behavior of domestic consumers and foreign producers.
This strategy would again require the permanent implementation of tariffs, which is incompatible with the temporary tariffs meant for negotiations or punishment.
Closing Remarks
It practically goes without saying that a tariff cannot be both temporary and permanent at the same time. At the very least, tariff proponents should stay logically consistent with their justifications—picking one rationale and sticking to it—to avoid arguing in bad faith by shamelessly violating the law of non-contradiction.
