Tariffs in American History

> The U.S., for instance, has a 2.5 percent tariff on cars imported from Germany, while Germany has a ten percent tariff on American cars. In addition, Germany’s value-added tax is remitted on exports but charged on imports. As a result, while the logos of Mercedes-Benz, BMW, and Volkswagen are seen all over American roads, those of Ford and General Motors are a rare sight in Germany.

What does that part about VAT have to do with this? VAT is essentially a sales tax with a more involved collection process.

The big difference in collections is that VAT is collected at each step of the chain of manufacture and distribution but refunded if the next step is not to a consumer, whereas in sales tax it is only collected on the final sale to a consumer.

As for why VAT is remitted on exports, it is the same reason why if GM builds a Tahoe in their factory in Arlington, Texas and sells it to a dealer or consumer that is not in Texas they do not pay Texas sales tax. Sales tax and VAT are both destination based. Exports, whether from Texas or Germany, are not to the final consumer and so VAT and sales tax are not owed.

Saying that VAT has anything to do with why BMW is more common than GM in Germany makes as much sense as saying that sales tax is why GM is more common than BMW in Texas.

Funny how, when a policy that was considered completely crazy a few years ago is introduced, there will be an army of people trying to find every justification for that policy to become normalized.

There's an excellent book by economist Michael Hudson called "America's Protectionist Takeoff" that discusses how the US used tariffs to promote certain industries in order to compete on the world stage. It was part of Alexander Hamilton's American System. Friedrich List, the German economist that wrote "The National System of Political Economy", used the American System to advocate for the same policies in Germany. Germany eventually adopted these policies and became an economic powerhouse themselves. Likewise, Meiji Japan went so far as to adopt the ideas of Friedrich List's economic policies, which resulted in them becoming a great power in a generation.

Tariffs can work, but only if they are targeted towards certain industries/sectors. They can't just be slapped across the board and be expected to work properly. Furthermore, they must be attached to certain KPIs such as exports (i.e., the ability to effectively compete on the international market). Joe Studwell's "How Asia Works" argues that Japan, Korea, and Taiwan all used tariffs and subsidies to promote their own "national champions". In turn, they forced those companies export their products rather than just sell domestically in order to compete. If they didn't meet those export targets, those companies were cut off from state support. Ha Joon Chang, a Korean developmental economist, likens this to raising a child: you spend their initial formative years supporting them until they are able to support themselves without your help.

As someone from a developing economy whenever I see a new .edu domain or .ac.uk domain I immediately try to find the institute’s establishment date. I rarely find anything above 1800s from these two countries- US, UK. I often wonder how much this aspect of a certain country contributes to its (sometimes meteoric) growth and how my own country was actually at the pinnacle once and how it coincided with having literally the best of the educational institutions of that time. But that was past — today a 20 year old institute is considered “old” here.

(Though I wonder how much they contribute? 30-40%? Or more? How does one find this out?)

Anyway, I am sure there are other factors like colonialism and what not. But even if you manage to rob someone else and then by the end of next week your money is gone in the various waterholes of your neighbourhood then you are right where you started ready to rob again until you can’t rob anymore. Are there other, from past, “robber” nations that squandered their loot in watering holes?

I wonder how “meteoric” the decline would be if those same academic institutes are undermined and are stifled, the ones that contributed to the rise.

PS. When I was applying to unis in mainland Europe (because US/UK was too costly) any place below at least a hundred year old was “too nuvo” for my academic taste ;-)

What seems to be lost in these discussions is how the American system rides on global respect for American IP, and that this respect for IP is part of the whole global trade system.

With global trade falling apart, this respect for IP is in grave danger. Robust IP protections contributed significantly to America's wealth.

The short-sighted focus on tariffs and re-shoring manufacturing completely neglects the whole balance and will damage America's position long-term.

That’s a really good read but I can’t believe they covered all of that history of tariffs, referenced the firing on Fort Sumter and never pointed out that Fort Sumter existed almost entirely for…tariff collection.

It’s an island right in the middle of the entrance to Charleston Harbor.

Perhaps worth noting that there are situations that tariffs can be considered a good idea:

* https://www.noahpinion.blog/p/when-are-tariffs-good

It's just that generally speaking, most of why they're being implemented by the US now are not valid.

I’m open to arguments that tariffs can be effective, but their advocates rarely seem open to the argument that the way they’re implemented matters.

To put it kindly a lot them are chaos apologists.

Hillsdale College is the type of institution that propagates the big lie: https://dc.hillsdale.edu/News-and-Events/News/Mollie-Hemingw...

Garbage in, garbage out.

This tariff discussion is insipid. The question is not whether there are some historic antecedents for tariffs. Of course there may be, like there are historical antecedents for slavery, but the question is what is the current econometric justification.

Some claims are just out and out misleading, like:

> One of the provisions agreed to by the U.S. in the early GATT negotiations following World War II was differential tariffs: the U.S. lowered its tariffs more than its trading partners did. Again, the purpose of this was to speed the economic rebuilding of allies and former enemies who had suffered devastation during the war.

Perhaps that was a purpose of those tariffs, but this ignores the more general purpose of US policy which was, at the time, to reduce trade barriers, by more closely integrating all these economies (see European Coal and Steel Community), and creating a customs union (see the Paris and Rome Treaties), all in service of preventing another world war.

> The U.S., for instance, has a 2.5 percent tariff on cars imported from Germany, while Germany has a ten percent tariff on American cars.

Hard to believe, in the age of Trump, but tariff rates are generally negotiated for provisions, as part of a broader trade agreement. TTIP, a new EU-US agreement, was dropped by the US without a deal in 2016. Guess why.

> As a result, while the logos of Mercedes-Benz, BMW, and Volkswagen are seen all over American roads, those of Ford and General Motors are a rare sight in Germany.

MB and BMW have a long history making cars, longer in many cases than the American companies. That is -- this is a mature industry, and, in general, Ford and GM are not regarded as making cars of the same quality both in the US or in Germany. So -- the reason you don't see many Cadillacs in Germany is because MB and BMW and Porsche make a better alternative, and the consumers know it.

Japan for instance has a 0% tariff rate on US cars and the Japanese still don't buy them.

Tariffs and other ideas associated with economic nationalism place politics ahead of the economic freedom of citizens. They declare that economic activity is something that must be stewarded and managed by politicians, and that citizens are too foolish to be allowed to have economic freedom, and that all should sacrifice for the benefit of those chosen by political leaders to benefit from heavy economic restrictions.

For comparison, China applies the minimal amount of economic protectionism it deems necessary to achieve its industrial policy goals. The crucial fact about China's approach is that China's leaders do not make silly claims to sell the idea to a naive public, they cite specific, highly targeted industrial policy goals and interfere in the economy as little as possible. They acknowledge the sacrifice that tariffs require and assert that the industrial policy goals are worth it, they do not make false claims about who pays for tariffs.

On the contrary, protectionism in the US is a blunt and emotionally wielded instrument that is deployed haphazardly and then suddenly repealed, then deployed again amid rhetoric that the US is a victim and has been taken advantage of, and the emotionally reassuring and politically priceless falsehood that foreign companies pay the cost of tariffs.

The costs of recent tariff antics in the US is clear as the economy must now price in the risk of unpredictable and haphazard tariffs along with other systemic risks. Absent from the discussion of tariffs in the US is any coherent idea of industrial policy, any forward-looking or coherent perspective on what should be done to prepare for the future, etc.

US tariffs are a purely emotional ploy meant to build up nostalgia for bygone days of US heavy manufacturing. The "us against them" rhetoric and the victimhood rhetoric is just a bonus that (sadly) sells well politically in the US these days.

It is not only counter-productive and directly harmful to the US economy, it is also deeply embarrassing that the world has to witness the US self-immolating in this way, hitting our own knee-caps with a hammer, destroying wealth and trust that many people worked so hard to create.

Economists don't favor tariffs for one simple reason: Economics is a science and there is overwhelming evidence telling us what will happen. Better policy ideas exist such as targeted industrial policy (such as that done by China) but the US ignores them in favor of the most emotional and reactive posturing imaginable.

It should already be clear what happened. Trump made a lot of claims about "deal making" and tariffs. Many of the claims were contradictory from the beginning, meaning if one was true the other could not be true. Supporters are not bothered by that because the appeal is emotional rather than logical. Now we've seen many tariffs get deployed, we've seen markets tank, companies cancel orders, reverse course, hold back on investment decisions. Then we've seen the tariffs get walked back amid bluster and rhetoric. Some economic numbers improve in response to this but not all. It's like the last spasms of a dying creature -- is it an attack or a retreat? Neither or both?

All this stems from a deep misunderstanding of American power and American greatness. Misunderstandings like this are easy in a society so heavily influenced by just-so stories and propaganda, societies like ours in which the state religion, American Exceptionalism, is irresistable to so many.

This is a retcon attempt. While sure, tariffs are just a tax like any other and can be applied to lots of different policy aims, and don't have to be the end of the world...

None of these arguments were presented in a reasonable way, with numbers, ahead of a policy decision that made a considered attempt to find an optimal balance.

No, we elected an administration that had been shouting "Tariffs!" during the campaign, then enacted "Tariffs!" once in office, then engaged in a quite frankly pathetic flurry of increases/decreases/suspensions/delays to try to fix the critical problems being introduced by the "Tariffs!". Most of which have been to other nations' benefit, even.

It's a bit much to look back after three months of this madness and try to pretend how reasonable it was all along. We're still in the madness (Q2/Q3 numbers haven't landed yet to show actual effects, it's going to be a rocky year, folks).