Scott Gibson: Trump love affair with tariffs could end up wielding havoc

About the writer: Scott Gibson has practiced medicine in his hometown of McMinnville since 1989. He and his wife, Melody, raised their three children in McMinnville before moving to the Eola Hills in 2017 to open the Bella Collina B&B. Landscape photography and writing comprise his main outside interests. He has written two novels and one non-fiction book, all awaiting publication.

A key question facing Americans as the second Trump administration looms is this — for what purpose does Donald Trump see tariffs?

That might seem self-evident, but it’s not. Tariffs can be used to bring money into the treasury, protect threatened domestic industries, hedge jobs from outsourcing overseas, or strongarm other countries into doing America’s bidding.

These uses sound like net positives for the country applying the tariffs. But they come with a serious cost.

Tariffs lead to higher prices, as the tax at the border is passed on to consumers. If targeted at only a few companies or only minor industries, tariffs may not affect overall inflation. But when placed on entire countries, especially major trading partners, inflation is all but inevitable.

From 1861 to 1933, the U.S. ran average tariffs of nearly 50%.

The Smoot-Hawley Tariff Act of 1930 was enacted to protect American farmers and businesses from foreign competition. But rather than pulling the U.S. out of the Great Depression, it worsened the crisis, economists largely agree, as other countries retaliated and international trade plummeted.

By 1934, the disastrous results of Smoot-Hawley were so apparent, Congress effectively ended it.

Following World War II, American leadership helped bring down tariffs throughout the industrialized world. U.S. tariff rates dropped from the pre-Depression 50% average to about 5%. The U.S. began a period of exceptional economic growth as a result.

The median family income in 2012 dollars had risen to more than $27,000 by 1947 and $67,000 by 2012. America competed on the international stage and thrived.

Most economists agree that broad tariffs would increase prices for consumers, limit choices of affordable products, invite retaliatory tariffs and, over time, decrease U.S. competitiveness. That is why — if tariffs are to be used — the purpose is so important.

Consider using tariffs as a form of heavy-handed persuasion.

Trump states his reason for threatening 25% tariffs on Canada and Mexico is to decrease the flow of fentanyl and immigrants into the U.S. But few would consider Canada a significant source of America’s immigration problems, and the Mexican government is no more able to stem the flow of drugs into America than our government is to curb the flow of firearms across the border into Mexico to supply drug cartels.

What Trump is really looking for is widely debated. But if it’s just to win concession from our southern and northern neighbors, and he can do that without long-term implementation of tariffs, he can notch a win without inflicting major economic damage.

Richard Nixon put a 10% surcharge on imports in 1971 to pressure other countries into adjusting their centrally controlled currencies, allowing the value of the dollar to fall. It worked, and in four months the surcharges were removed.

This showed an unusual case of a brief, targeted tariff that succeeded, then disappeared. Using tariffs to coerce countries to sell vast amounts of land to the U.S., read Greenland, is another matter altogether. Imperialism by tariff would threaten years of coalition-building by signaling that when a president wants something, being a trusted ally counts for little.

Protecting industries and their related jobs with tariffs is tempting but hazardous. Shielding only some industries from competition warps the market.

If steel imports are tariffed but lumber imports are not, for example, then the government is picking winners and losers rather than the free market. That course has a long history of twisting markets and making healthy companies bail out failing, inefficient firms.

Worst of all is the use of tariffs to fund the government. Yet this very method is being discussed by congressional Republicans to backfill tax cuts largely benefiting the wealthy.

Since tariffs eventually fall hardest on everyday people buying everyday stuff, the net effect is to shift wealth from the poorer classes to the richer. The poor can be spared from paying income taxes, but no one is protected from higher prices.

Donald Trump recently said, “To me, the most beautiful word in the dictionary is ‘tariff.’” With such an endorsement, it seems unlikely that America will escape the treacherous path that tariffs represent.

This is not conservatism. It is roulette.

If used precisely right, tariffs may lead to advantage. But the risk is great, and the potential for lasting damage — economic, political and societal — is substantial.

Only an ego as large as Trump’s would place such a wager. Let’s hope we somehow come out winners.