Should the U.S. enact tariffs to protect domestic industries?
In a context of growing economic competition between countries, whether the U.S. should enact tariffs remains a salient question
Rise of the Issue
Tariffs, which are taxes imposed on imported goods, are among the most widely used instruments for governments seeking to protect domestic industries, punish foreign countries for unfair trade practices, and raise revenues. As they are direct opposites of free trade, debate over them is vigorous as the world becomes more integrated economically.
Birthed in 1789, its original goals were to protect domestic industries, especially manufacturing, from foreign competition and to raise government’s revenues. Its popularity plummeted once the United States, along with 22 other countries, in 1947 signed into the General Agreement on Tariffs and Trade, the precursor to the World Trade Organization, agreeing to reduce the amount of tariffs to promote world free trade. Since the agreement was made, the U.S. imports have steadily increased and have started surpassing the exports from the mid 1970s on. But in the late 2010s, led by President Donald Trump, the U.S. started reinforcing its tariff policies in trade relations with rival countries, especially China. The general consensus is that these tariffs either had little or a mildly deleterious effect on the U.S. consumer. More generally, the debate on the issue of tariffs revolves around whether tariffs hurt domestic industries or helps the U.S. expand its foreign trade.
Trading with the Enemy Act
In response to the nation’s entry into World War I, Congress granted the president the power to impose any tariff while the country was at war.
In an act that was accused of worsening the Great Depression, the Smoot-Hawley Tariff Act raised U.S. tariffs on over 20,000 imported goods.
General Agreement on Tariffs and Trade
The U.S., along with 22 other countries, agreed to promote international trade by either decreasing or eliminating tariffs.
Trade Act of 1974
As part of a bill to give the president “fast track” power to negotiate trade agreements, the president was also given the authority to impose a 15% tariff for 150 days in the case of “an adverse impact on national security from imports.”
The Trump administration imposed tariffs on washing machines and solar panels, aimed at China; and steel and aluminum, aimed at Canada, Mexico, and other countries.
While some believe tariffs to be a necessary means to protect domestic industries from the dangers of international trade competition, others argue that tariffs hinder the benefits that free international trade brings to the U.S.
One of the key points of debate surrounding tariffs is whether they help prevent industry dislocations to cheaper foreign countries and provide more jobs to Americans, or whether they hinder American businesses from making a larger margin of profit through dislocation and ultimately hurt the American economy.
Tariffs’ proponents focus on how tariffs benefit the domestic economy at large, while opponents focus on how tariffs end up costing more to consumers and disproportionately harming some domestic industries while helping others.
They give domestic industries and products an advantage.
Tariffs can protect domestic producers from their international competitors with lower prices.
They are an effective tool against unfair trade partners.
Tariffs can be used as a means to counter unethical trade practices (like dumping) from other countries.
Tariffs prevent business dislocations.
Imposing tariffs on some foreign products benefits equivalent domestic industries and protects jobs for Americans.
They reinforce the domestic economy.
Tariffs are a way to encourage Americans to consume American products, thereby injecting more money into the national economy.
They protect consumers from lower-quality foreign products.
Foreign countries may not have the same regulatory safeguards in their manufacturing sector, enabling them to dump cheap and/or harmful goods into the U.S. marketplace.
Imposing excessive tariffs hinder international trade.
The U.S.’s excessive use of tariffs can encourage trade partners to do the same, thereby discouraging international consumers from buying American products.
Tariffs can negatively affect the U.S. economy.
Tariffs can have the consequence of reducing how much foreign trade partners import from the U.S., meaning putting a limit on the amount of foreign money injected into the American economy.
They can harm American consumers.
The way that tariffs are applied is as an added tax on products that consumers buy, meaning that the ones actually paying the price for increased tariffs are everyday consumers.
They limit consumer choice.
Raising the price of imported goods lowers the number of people who can afford them, and limits the purchasing options that consumers previously had.
They have harmful consequences for some American businesses.
In a globalized world, many American businesses rely on foreign imports to create American products. Adding tariffs on some industries’ necessities reduces the margin of profit they can make, and endangers these companies viability.