I know, I know— some might compare reading an article about tariffs to watching paint dry. Especially compared to the batch of articles I’ve written lately but I promise I’ll do my best not to make this topic as boring as it normally is. I probably wouldn’t write it at all had Kamala Harris not broached the subject during the debate though she referred to it as a Trump national sales tax all Americans would be forced to pay. First, her claim is patently false and second, what she’s really talking about are Trump’s tariffs. Many of which the Biden/Harris administration have kept in place to this day. But Kamala doesn’t mention that during the debate. Anyone surprised? Nah… didn’t think so. More to learn throughout this unbelievably exciting (sarcasm) article!
I’ve always believed I had a fairly good understanding in regard to tariffs and how they worked, at least I believed I had enough understanding. Keyword being: enough and for the most part, that was true. But before we go any further, let’s see how good old Merriam-Webster defines it.
Yep, I’d say that pretty much says it all concerning tariffs in the literal sense of the word. But there’s more to it than that and instead of boring you with all the details, we’ll stick to the interesting parts. We’ll begin with a history lesson. We haven’t done one of those in a long time— lucky you… right?
A History Lesson
There was a time before the implementation of the federal income tax in 1913— tariffs along with excise taxes and other forms of federal revenue collecting funded the U.S. government. You have to remember, back then there was no such thing as social security, medicare or virtually any other federal social safety-net in place for U.S. citizens. Also keep in mind the U.S. government was a fraction of the size it is today. The federal government did there thing keeping up with their basic constitutional obligations and outside of that, the people were on their own to do their thing. This fairly copacetic relationship between the federal government and the governed stayed this way for well over one hundred years financed primarily through tariffs on foreign imports at the average rate of 20%. Sounds about right, doesn’t it? Well, that’s not exactly true.
The U.S. federal income tax actually began fifty years earlier during the Civil War in 1861. Had to pay for the war somehow, right? With the signature of President Abraham Lincoln, Congress passed a law imposing a three-percent tax on all incomes over $800.00 which later evolved into a graduated tax. However, this income tax was repealed in 1872 (seven years after the civil war ended mind you) because interestingly enough, it was deemed unconstitutional. In any event, they got their money. Funny how that works even today, isn’t it? (He said sarcastically)
For the following 111 years (give or take) and unlike direct taxes on U.S. incomes, tariffs were basically out-of-sight— out-of-mind. The average person just didn’t give them that much thought. Sure, there were a few spats between countries here and there but for the most part, tariffs were simply seen as the cost of doing business. That was until fairly recently. [End of history lesson]
Let me be clear— tariffs are an extremely complicated part of trade agreements between countries. There’s a reason this article is titled In a Nutshell. I, like yourself aren’t really that interested in the mountain of details connected with them. Want to know more? Feel free to do your own further research. The information is easily accessible. Like I said, we’re sticking to the interesting parts. Where does all the money collected from tariffs go? Into the government’s sofa cushions (U.S.Treasury) to be spent pretty much however they like. Moving on…
In Walks President Trump
and he gives America a much needed lesson on how countries have been using the U.S. as a willing door-mat. He was absolutely correct in more ways than we could imagine. Why? Because until Trump, America was kept in the dark. First it was NATO Countries not keeping their end of the bargain in regard to their NATO defense spending. Trump calls them out— warns them of consequences for not keeping up with their NATO obligations and lo and behold— they break out their checkbooks. Then came the tariffs.
One of the perks that comes with being President of a nation with the largest economy of the world is it can at times give leverage over other countries determined to have taken unfair advantage of either us or one of our allies. Don’t get me wrong, that was never the original intention when it came to trade agreements but, tariffs can be a rather large, very useful tool in negotiations, whatever they may be about. Trump was also correct saying the U.S. had indeed been taken advantage of for decades and this included friendly governments although the blame lies primarily on us for striking such agreements in the first place, not them. He put an end to these practices by getting rid of NAFTA and the proposed Trans-Pacific Partnership (TPP) agreement. NAFTA was replaced with USMCA agreement said to be much better for the United States. (I’ll take their word for it. Remember, sticking to the interesting parts.)
It’s also at this point when Trump came up with the brilliant idea that if things weren’t going his way with other issues outside of trade, instead of the normal bribes given to other countries, he’d simply slap a tariff on them. If countries got a little too cocky with their own tariffs, he’d do the same. Next thing you know, the additional tariffs placed on U.S. goods magically disappeared. Solved that problem. Trump needed Mexican troops to patrol their border with the U.S. to stem the flow of illegal immigration, Mexico refused— at first. Trump said, “That’s fine,” then proceeded to tell Mexico of an impending 25% tariff on all goods from Mexico into the U.S. would begin the following day. Next thing you know, there are 28 thousand Mexican troops paroling their northern border with the U.S. Notice how that abruptly ended when Biden was installed. Seeing as Biden opened the borders, there was no longer a need for them.
Trump must have thought to himself… “Hey, I’m really on to something here. Instead of using bribes, sanctions that rarely work or multi-million dollar bombs, I’ll use tariffs.” Then he went one step further. When certain Latin American countries refused to take back their citizens deported from the U.S.— Trump again responded with, “that’s fine. By the way, how much are you receiving in aid from us?” Then proceeding to say in what must have been a very polite way that if they didn’t take back their people, all aid would cease immediately. Imagine that, these countries took their people back. Again, problem solved. Financial consequences was the answer and it didn’t cost the U.S. one additional dime they weren’t already spending. Kinda brilliant.
So, let’s answer the question. Are tariffs the same as a national sales tax? Well, it is a tax however, it’s far from national because it all depends on consumer preferences. Remember, tariffs are basically built-in to trade agreements. If you purchase a product that was manufactured outside of the U.S. then it’s a fairly safe bet there is a tariff or perhaps some other fee attached to it. That being said, like many taxes, fees, rises in production costs… etc, most are either absorbed by the manufacturer, export/import broker and/or retailer. (Or a portion thereof.) The rest (if there is any) is most likely passed on to the consumer in the form of higher prices. If the normal tariff on products imported from a country is 20% through trade agreements, then yes, one could call it a tax but only if the product is purchased. So I guess one could call an additional targeted tariff on specific products an optional tax. But remember, there are no tariffs on products made in the U.S. [On a side note, I remember someone telling me many years ago there are somewhere around ninety different taxes to create a loaf of bread. Not sure if that’s true, but it sounds true.]
Kamala Harris says Trump’s Tariffs amount to a national sales tax. And the answer is? Absolutely false although we should expect nothing but lies from the Harris campaign as the last debate clearly demonstrated. The Trump tariff is a completely different animal but we’re going to need one final (brief) history lesson to better understand it all.
Final History Lesson—
Up until the early 1930’s, Congress had the sole authority to levy tariffs on imported goods via Article I, Section 8 of the U.S. Constitution. “The Congress shall have the Power to lay and collect Taxes, Duties, Imposts and Excises.” Due to the Great Depression, Congress relinquished some of their authority with the passage of the Reciprocal Trade Agreement Act of 1934 handing over to the Executive Branch the power to negotiate tariff reductions within pre-approved levels by Congress. Within pre-approved levels by Congress— I find that part a tad difficult to believe. Nevertheless, FDR became the first President to have the authority to levy tariffs and negotiate bilateral trade agreements without the approval of Congress. [So much for pre-approved levels.]
In 1962, Congress handed over the entire tariff enchilada to President Kennedy when he signed the Trade Expansion Act, which allows the President to adjust tariffs based on threats to national security under section 232.3. The reason I said the whole tariff enchilada is because now any President can claim a threat to national security and define it however they like, just as long as it does the trick. This is what gave and will give Trump the authority to slap a tariff anytime and for whatever reason he deems necessary as he did with steel and aluminum. [End of final history lesson]
The only time we hear about tariffs is Trump’s use of them in lieu of bribes, bombs or taking other measures that could jeopardize the U.S. The latest example is his promise to place a 200% tariff on cars manufactured in Mexico in plants owned by China in order to save the U.S. auto industry. This tariff would essentially price these cars out of the market. No one would purchase them. Some call this protectionism but there are times when it’s needed. Especially when tens of thousands of jobs in the American auto industry are on the line.
Trump’s tariffs are designed with two goals. First, to bring countries to the negotiating table in order to create a more level playing field in regard to trade. Secondly and equally important is to warn other more specific countries that if they want to do business in the U.S.—
their governments better get their shit together.
