Here’s a letter to the economist John Lott.
John:
Thanks for your note on Facebook. It’s good to hear from you.
You ask:
There is another reason for tariffs, and it is an argument that Trump has made multiple times: that you can lower the income or other taxes when you raise tariffs. All taxes stop trades from occurring. Income taxes stop people from trading their labor. Sales taxes stop some goods from being traded. I have asked you this before without a response, but how are tariffs any different? Isn’t the goal of efficiency to equate the marginal deadweight losses across the different taxes? I want to reduce all tax rates, but why would anyone think that the optimal tariff rate is zero? Now I don’t know if the right rate is 15% for Japan, but I strongly suspect it is significantly higher than what we had.
I share your desire for lower taxes (as long as these don’t contribute to larger budget deficits), and I have no objection to a revenue tariff. But the entire tenor of Trump’s trade policy, as well as the construction of his tariffs, reveal that, for Trump, tariffs are first and foremost a tool for protection.
I need not belabor the fact that the purpose of revenue tariffs is diametrically opposed to that of protective tariffs. It follows that if Trump seriously wishes to sell his tariffs as a consumption tax imposed for revenue purposes – perhaps to reduce the taxation of income or capital gains – he’d do so without promising that the tariffs will create more manufacturing in the U.S. And he would be silent about the effect of the tariffs on so-called ‘bilateral trade deficits.’ Well-designed revenue tariffs, of course, discourage as little trade as possible.
Nor would Trump brag, as he often does, of his tariffs being bargaining chips that he plays to pressure foreign governments to change their policies – both trade and non-trade – in ways that (Trump asserts) are in America’s best interest. Tariff rates that will be lowered or eliminated if and when other governments bend to Trump’s will are obviously not meant to be a steady source of customs revenue.
For more than 40 years Trump has sung the same protectionist tune, revealing himself to be a cartoonish mercantilist. He has famously written in his notes “Trade is bad.” His 2017 inauguration speech focused on the devastation that trade allegedly has done to America. He surrounds himself with overt and unapologetic protectionists such as Robert Lighthizer and that clown Peter Navarro. And of course Trump is today, as he has always been, obsessed with trade deficits. And not so much with the U.S. trade deficit with the rest of the world, but with (so-called) U.S. trade deficits with individual countries. And, indeed, not just with (so-called) U.S. trade deficits with individual countries, but with U.S. goods trade deficits with individual countries – a concept that cannot be bested for its economic lunacy.
Keep in mind that it is these goods trade deficits with individual countries that Trump alleges – fatuously – is the national emergency that justifies his use of the power delegated to the president in the IEEPA statute.
There is simply no way to square 95 percent of what Trump has said over the decades about trade – what Trump says today about trade – what Trump’s advisors and apologists say about trade – and what Trump is actually doing, trade-policy-wise – with the claim that Trump intends his tariffs, not to serve mercantilist ends, but to reduce the economic burdens of U.S. government taxation.
I quickly add that Trump himself might well not see that revenue tariffs and protective tariffs are opposite things. But such ignorance is surely only more reason not to trust the man with tariff-raising power.
No more, I think, need be said to put to rest the idea that Trump’s chief goal is to reduce the deadweight loss caused by U.S. tax policy. But I will, nevertheless, say more.
The Congressional Budget Office estimates that Trump’s tariffs will raise, at most, $2.8 trillion over ten years, or on average $280 billion annually. That’s only 4.7 percent of 2025 federal-government expenditures, and less than 22 percent of the 2025 U.S. government budget deficit. This sum is paltry when compared to total government expenditures. While a serious, well-designed revenue tariff would bring in more revenue than Trump’s tariffs, Trump’s tariffs are not that: they are mad, protective tariffs that raise revenue only incidentally. Given this reality, it seems pretty clear to me that the fiscal benefits of whatever revenues Trump’s tariffs happen to raise will be overwhelmed by the economic damage that these protective tariffs impose on us all.
There is, in short, no reason to excuse Trump’s tariffs on the grounds that they might help to reduce other forms of taxation. That’s not Trump’s main goal, and it’s not what will happen under his tariffs.
Sincerely,
Don
