The Surprising and Forgotten Benefits of Tariffs

All taxes have negative side effects and consume productivity from the economy. Further, government spending distorts the economy and is a net-drain on wealth accumulation¹. Despite the universal truth that all taxes are inherently bad, some taxes are better than others.

The modern bipartisan consensus in America is for low or zero tariffs with high income taxes². Along with integrated supply chains, low tariffs are the foundation of globalization. However, this wasn’t always the case.

Self Limiting

Prior to 1913 and the ratification of the 16th Amendment, the federal government was funded primarily on tariffs³⁴. Many critics of tariffs argue that tariffs are regressive, meaning they disproportionally affect the poor⁵. However, instead being a weakness, its regressive nature is an enormous benefit of tariffs.

How could regressive taxes be good? Easy. Tariffs are inherently self-limiting because they disproportionally affect the poor. All taxes are self-limiting, as the Laffer Curve illustrates⁶. However, the Laffer Curve doesn’t consider politics. Unlikely income taxes, the masses acutely feel the negative side effect of tariffs and, therefore, politically oppose the growth of tariffs⁷.

Globalization

Many politicians and economists insist that globalization is a net good for society⁸. There is no doubt that prices drop due to increased competition and greater specialization. However, these benefits don’t necessarily out weigh the costs. For example, the food industry exposes many of the costs/cons of globalization.

In fact, the whole-food and local-food movement is intrinsically an anti-globalization movement⁹. Even though prices are higher with locally grown foods, the quality of the food is considerably better. Food that is shipped around the globe is picked long before ripening¹⁰. However, when people eat locally grown produce, farmers wait until their crop naturally ripens. The result is better product that consumes significantly less resources to transport¹¹.

Politics

They say that all politics are local¹². But that simply isn’t true with globalization. The further supply chains integrate, the more international politics affects individuals. And today’s globalization is built upon a foundation of foreign interference and regime change.

The sad truth is that the US military industrial complex frequently pursues regime change on behalf of multi-national business¹³. Of course, they always claim regime change is in the name of either ‘democracy’ or ‘American Interests’. Regardless of their claims, the list of nations affected by regime change is long and growing. Few people know that the US created the nation of Panama with the sole purpose of building the Panama Canal, which is the ultimate symbol of globalization¹⁴.

Without cheap raw materials, globalization would not function. And this insatiable demand for resources drives American foreign policy. When Chile nationalized their copper industry, the US immediately backed regime change. When Iran nationalized oil production in the early 50’s, a British/US backed coup quickly followed. The pattern repeats every time a nation attempts to wrestle control of their natural resources from multi-national corporations.

What does Foreign Policy have to do with Tariffs?

Once the US gets its hands on a nation, they are guaranteed to lose out on the benefits of globalization. Instead of exporting value-added, finished products, the US forces these nations to allow multi-national oil and mining companies to export cheap raw materials with little to no benefits for locals. Iran is an extreme example of this trap. Despite having more oil than they could ever use, the nation has to import gasoline due to a lack of infrastructure and investment for refineries¹⁵.

Imagine instead that the US had high tariffs. Then there wouldn’t be a huge demand to plunder foreign resources like oil, copper, coal, uranium, etc. The nations of the world would have the freedom to decide how best to manage their own natural resources. And the US could mine many of these raw materials internally, just at higher prices.

Conservation

If every nation used tariffs and rejected US-backed globalization, then prices for goods would rise all over the world. Of course, higher prices in-and-of themselves are not a good thing. However, higher prices encourage finding alternatives and conservation¹⁶. Whatever your feelings about the concept of peak oil, the earth has a finite supply of natural resources and conservation should be an important factor when considering tax policy.

Conclusion

As long as the US remains the world’s hegemon, it is safe to assume that globalization will progressively expand. Economic dependences between countries will expand and drive demand for additional US-back regime change. The US will persist with its policy of foreign interference. And poor, resource-rich nations will keep losing out while the benefits primarily go towards large multi-national companies.

It is wishful thinking that tariffs could change any of this. However, I hope that I’ve made a compelling case that tariffs and globalization are opposing forces. Further, globalization itself is hopeless interconnected with an aggressive foreign policy.

Instead of the current hegemony, a world with high tariffs would look different. Citizens in countries that rely heavily on tariffs would inherently limited the size of government. Meaningful tariffs would also encourage conservation and lessen capitalism’s impact on the environment. Finally, by restricting imports, tariffs help local producers, especially in agriculture and manufacturing.

Concordia

In the book, Concordia, There Must be a Better Way, a team of dedicated pioneers establishes a new nation. They reject the income tax and rely on tariffs for most government revenue, similar to early America. To limit the government’s ability to collect taxes, a super-majority of voters is required to raise tariffs.

What would you do if you had the opportunity to start from scratch? How would you balance freedom, liberty, and justice, while assuring that investors are rewarded for taking a risk on your enterprise.

To found out what happens, buy the book now on Amazon. It is an exciting novel that challenges your assumptions and entertains you in the process.

Recommend Reading

Support my blog with the purchase of one of these excellent books. I get a tiny commission for each purchase, but only if you purchase using one the links below.