Perspective: How both parties are getting it wrong on tariffs and trade

Imagine a serene summer evening: You’ve just finished mowing the lawn, birds are singing softly in the background, and you settle into a hammock with a book or a cold drink, ready to unwind. Suddenly, a car pulls up with a group of teenagers heading to a party at your neighbor’s house. They cannonball into the pool and crank up their music to maximum volume, shattering your plans for a peaceful rest.

Frustrated, you shout across the fence, “Can’t you keep the noise down? Some of us don’t want to hear your music!” They ignore you, and in frustration, you start punching yourself in the face out of sheer outrage.

One teenager approaches and asks what you are doing. “I’m so angry,” you explain, “that I’m punching myself to show you how furious I am at you.” Perplexed, the young man walks away, wondering about a neighborhood that would spawn such behavior.

Such a scene is playing out in the discourse about international trade in presidential campaigns right now. Both the Biden and Trump campaigns are acting like the angry man who resorts to self-harm to express displeasure at another’s action.

Recently, the Biden administration announced steep tariffs on Chinese electric vehicles, solar panels and steel, while the Trump campaign proposed a 10% surcharge on all imports. Both policies reflect a dismissive attitude, are unserious and are detached from economic reality.

Trade is the cornerstone of a market-based, free enterprise society. Countries and individuals have certain abilities, resources and training that allows them to be productive in some but not all venues. Specialization and trade allow partners to synergize and boost productivity while allowing citizens to consume beyond the productive capabilities of their own societies.

Trade occurs when the price of a foreign good is lower than its domestic counterpart, incentivizing entrepreneurs to import goods at a lower cost and sell them in the United States. Arbitrage allows importers to make a profit while consumers enjoy new products at a lower cost.

However, domestic businesses struggling to compete may demand protectionist measures, like tariffs, from elected officials. Let’s be clear: tariffs ultimately tax American consumers who exercise their liberty to choose in a free enterprise system. Tariffs increase prices such that the foreign price is the same as the domestic one, closing the incentive to efficiently move goods from foreign producers who are most efficient to American consumers willing to buy their products.

Most taxes distort economic behavior unintentionally. Income taxes, for example, may discourage extra work shifts, sales taxes can reduce consumer spending, and property taxes might limit housing choices.

Tariffs are doubly pernicious. First, as the tariff increases, consumers purchase less of the product, both foreign and domestic. Most consumers don’t notice if blueberries at the store come from California or Mexico, but they will see the prices increase regardless of the berries’ place of origin. Second, other countries will retaliate with tariffs of their own.

These retaliatory tariffs rarely come on the same items, but rather our former friends now target the goods that we have an advantage at producing, thus sealing off our manufacturers from new markets to protect the uncompetitive firms. These distortions tear at the national fabric and put government in a position of choosing winners and losers at the expense of anyone going to the grocery store — that is to say, pretty much all of us.

Tariffs also harm the domestic producer. While they feel protected in the short run, without competition, firms become bloated and inefficient. There is little incentive to innovate and create new products. It is the very definition of lose-lose.

Economic history has shown that tariffs are disastrous as fiscal policy tools. From the heavy tariffs of the last half of the 19th century that caused volatility in agriculture and reduced investment in machinery to the infamous tariffs introduced in 1930 by Utah Sen. Reed Smoot and Oregon Rep. Willis Hawley that arguably deepened and prolonged the Depression . The so-called golden era of tariffs is simply a gilded myth.

Current proposals will do no better. The nonpartisan Tax Foundation found that former President Donald Trump’s tariff proposals would increase the tax burden $524 billon while lowering the GDP growth rate by 0.8 percentage points (nearly half of last quarter’s growth rate) and costing 684,000 full-time jobs.

The late Sen. Orrin Hatch made waves in 2018 by sharing a T-shirt bearing a quote from Scott Lincicome of the Cato Institute: “Tariffs not only impose immense economic costs but also fail to achieve their primary policy aims and foster political dysfunction along the way.” (A shirt probably made at a cheaper cost in Southeast Asia.)

Both political parties seem to be forsaking international trade and free-enterprise capitalism, systems that have lifted nearly a billion people out of poverty, in favor of a half-baked machismo that will inevitably lead to severe economic consequences.

Michael S. Kofoed, @mikekofoed on X, is an assistant professor of economics at the University of Tennessee, Knoxville, and a research fellow at the Institute of Labor Economics. A Utah native, he holds degrees in economics from Weber State University and the University of Georgia.