It's pretty clear by now that the Trump administration's favorite way to put pressure on another country to accomplish some political goal is to threaten and impose tariffs.
In fact, tariffs have become an all-purpose foreign policy tool for the Trump administration. China's theft of IP and unfair business practices? Tariffs. China's supposed currency manipulation? Tariffs. China's trade surplus with the United States? Tariffs.
The US steel industry not doing great? Tariffs.
And now, trying to get Mexico to do more to stem the flow of migrants into the US? Well, tariffs, of course.
Now, the common retort to criticism of tariffs is something along the lines of "Well, at least he's doing something!" Or, "Don't you think we should do something about China's IP theft\China's currency manipulation\hordes of illegal immigrants from Mexico?"
Well, yes, actually. I DO think the president should be addressing all of those things, and I'm glad he is. I just don't think tariffs are the only or the best tool to accomplish those purposes. There are other tools in the quiver besides tariffs.
There are several problems with using tariffs as an all-purpose foreign policy tool.
- There's no legal basis for broad use of tariffs. Congress, not the president, has the power to impose tariffs, in our constitutional design. Congress has chosen to give the president the power to impose tariffs in cases of national emergency, which was unwise in my opinion, but not everything is a national emergency. An immigration crisis at the border might very well be a national emergency, but helping the steel industry was a preference of the president, not a national emergency. So Congress has created a legal basis for using tariffs in cases of national emergency, but not everything is a national emergency.
- Tariffs hurt Americans. Tariffs are taxes that are paid by Americans, not by foreigners. They are an indirect way of putting pressure on a foreign nation by making it more expensive for Americans to buy foreign products. So tariffs harm American consumers by making products more expensive. Tariffs also result in retaliation from the other nation, which also hurts American businesses. American farmers in particular are suffering right now because of the retaliatory tariffs, which is now resulting in unnecessarilly higher federal spending for relief payments to farmers. Tariffs are a broad, blunt tool that hurts Americans in an indirect attempt to pressure another country.
- There are better tools than tariffs. IF the administration has decided that it needs to apply more significant pressure to a government, there are better tools available than tariffs. Sanctions of various types, for instance, that target the elites of a country and therefore get the attention of the government without broad harms to the U.S. economy. I broadly hinted at this in a tweet yesterday:
Ways to put pressure on Mexico that don't hurt American workers:— Tom Giovanetti 🗽 (@tgiovanetti) June 5, 2019
1. No visas to the US for Mexican business travel.
2. Punitive fee on financial transfers from the U.S. above $5,000.
3. U.S. investment in Mexico not eligible for tax deductions, tax credits.
So, if you want to get Mexico's attention on the border crisis, make it difficult or impossible for Mexican businesses to come to the U.S. for business purposes. Make it more expensive for them to get to their money in the U.S. Discourage the flow of US foreign investment in Mexico. I'm not wild about any of those ideas, but if we have to do something, those are ways of pressuring Mexico that don't have a broad, harmful impact on the U.S. economy.
Target the Mexican elite, not Americans.
Same thing with China. There are lots of ways to put pressure on China, including using the World Trade Organization and other bodies, which have the benefit of aligning all of the member countries with the U.S. on things like IP disputes, etc. The U.S. actually has an excellent record of getting concessions and changes from China as a result of winning WTO disputes.
The point is, tariffs aren't the only tool available, and as history has shown, tariffs are a bad tool that lead to further international turmoil, rather than less. President Trump clearly favors tariffs, but that's undoubtedly because he doesn't really understand them, and isn't particularly sensitive to their impact on low- and middle- income Americans.
And a further harm of tariffs is that by harming the economy, they at least partially undermine the great success of the 2017 tax cuts, which clearly had a beneficial impact on the economy and on personal wage growth.