The threat of tariffs is apparently a big stick, as President Donald Trump proved over the weekend after Colombia’s president backed off attempts to reject military flights from the United States — flights carrying Colombian citizens who had entered the U.S. without documentation.
Colombian President Gustavo Petro initially refused to accept the flights, which led Trump to threaten immediate 25% tariffs on all goods sent to the United States, with a promise of raising them to 50% after one week.
The United States is Colombia’s largest trading partner, providing mostly Colombian oil, coal, coffee and cut flowers.
Trump also threatened to revoke visas and impose travel bans on Colombian government officials and their supporters, as well as to subject all Colombian citizens to extra inspections upon arrival in the U.S.
Tariffs cut 2 ways
But it was the tariffs that garnered the most attention, for good reason. That stick, if used, would come with consequences. The record is clear. Tariffs hurt the country that imposes them as well as the country that is targeted.
Politicians often tout tariffs as a way to protect American jobs in select industries from cheap imports. This is why they often are referred to as “protectionism.” And yes, they often do serve that narrow purpose. However, they cost many more jobs in other parts of the economy that rely on the imports that are being penalized.
Tax increases
Economists often equate tariffs with tax increases, because they raise the cost of imported goods while also providing market incentives for domestic producers to raise prices, as well.
Researchers at the Tax Foundation, a ”nonpartisan, educational organization,” determined the first Trump administration “imposed nearly $80 billion worth of new taxes on Americans by levying tariffs on thousands of products valued at approximately $380 billion in 2018 and 2019, amounting to one of the largest tax increases in decades.”
President Joe Biden kept most of those tariffs in place, even adding to those imposed against China. The Tax Foundation said these, taken together, will reduce GDP by 0.2% and cost 142,000 full-time equivalent jobs over time.
Meanwhile, a study by the National Institutes of Health looked at five decades worth of tariffs from 151 countries and their effect on economies. It found that “tariff increases are associated with an economically and statistically sizable and persistent decline in output growth. Thus, fears that the ongoing trade war may be costly for the world economy in terms of foregone output growth are justified.”
‘Tariffs destroy wealth’
Wall Street Journal columnist Andy Kessler put it simply: “Tariffs destroy wealth.”
But the effects of tariffs are often hard for people to see. Their positive effects are targeted, while their negative ones are more scattered.
Unfortunately, Congress has incrementally ceded its constitutional authority to levy and collect taxes, duties and excises to the president over the past century. As Kessler noted, this started in 1934 when Franklin Roosevelt signed the Reciprocal Trade Agreement Act, letting presidents apply tariffs without the help of Congress.
This continued during the Cold War, when Congress allowed presidents to restrict imports under the cause of national security. In 1977, Congress gave presidents power to regulate trade if a national emergency exists.
But emergencies are too easy to declare. Forty-two of these are in effect today, dating back to 1979, when President Jimmy Carter froze Iranian assets in retaliation for the hostage crisis involving American citizens.
The role of Congress
We understand that presidents need to be nimble enough to negotiate trade agreements and enact sanctions or other punishments against belligerent nations. And President Trump during his first week back on the job is effectively using the hammer of tariffs to implement his agenda. But it’s time Congress reasserted the powers expressly given it under Article 1, Section 8 of the Constitution, especially when it concerns threats against allies.
In truth, tariffs against Colombia would have been barely felt in the United States, which has a much larger economy. But it could have devastated Colombia’s economy, possibly bringing instability to the third most populous country in Latin America, behind Brazil and Mexico.
We hope for a balanced approach, capitalizing on the president’s leadership, working with Congress to benefit not just America’s interest but also our trading partners. Those goals are not mutually exclusive.