If you’re a business looking to sell goods outside of the country you produce them in, it’s likely that you’ll have to pay what’s called a tariff.
Tariffs are a special type of tax that countries charge businesses for the privilege of selling within their borders – and until 1914, they were the main source of revenue for the U.S. government.
Most of the time since then, tariffs have dropped and made it easier for businesses to trade abroad.
Then in 2018, the Trump administration raised tariffs on several products coming from China, kicking off what experts have called a “trade war” – with China retaliating and raising tariffs in return. When President Biden’s administration took office, very little changed.
David Wessel is a senior fellow at the Brookings Institution and he joined Texas Standard to explain where tariff policy may head after the 2024 election. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: Let’s hear this talk a little bit about the state of tariffs. It used to be that tariffs were a dirty word, certainly as we saw expansion of globalization around the world over the past several decades. Now it seems like they’re back on the table. What’s going on?
David Wessel: Absolutely. So after World War II, there was a decades-long campaign, largely led by the United States, to get countries to lower tariffs, in part so that American producers could sell into foreign markets. And there was this general sense – it started with economists, but it sort of became embraced by the political establishment – that the more trade, the better. So we had all sorts of free trade agreements, and the idea was we would always be lowering the barriers to trade and everybody would be better off.
That really changed. There have always been some reservations about free trade, but they grew a lot and President Trump really capitalized on them. He used his presidential power to impose tariffs. And President Biden has largely followed that course.
There are differences on the specifics, of course, but the Biden administration is almost as concerned about the ills of globalization as the Trump administration was before it.
It seems like the risks here were more dangerous when the U.S. was a major producer of consumer goods. That has long not been the case. But, you know, you worry about retaliation, for example, when you impose tariffs on other countries. It seemed like Donald Trump wasn’t too concerned about it, but it did trigger a trade war starting around 2018, right?
That’s right. So I think one of the things that changed was that it became clear that the surge of exports from China to the United States was lowering prices for consumers, but really hurting workers and the communities in which they live that were in those industries that China was exporting into. It’s been called the “China shock.”
So one big change in the way people think about this is that the proponents of lower tariffs and more trade always talked about the benefits to consumers. You can buy cheaper things at places like Walmart and Target, because they can buy cheap goods from China and they don’t have to pay a big tariff on them.
Both the Trump and the Biden administrations have emphasized the pain that trade can cause to workers, and that has led them to say “to benefit workers, we need to make it harder for these cheap goods to come into the United States – particularly from countries like China, where the government doesn’t play by the same rules as ours.”
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But let’s pull back for just a moment, because we saw recently President Biden talk about 100% tariffs on Chinese electric vehicles. And we’ve seen the Chinese electric vehicle market take off. I guess what I’m wondering is is it really good, or are consumers not really paying more for the goods that have tariffs attached to them?
Well, we don’t import a lot of EVs from China…
Not yet.
Wait, wait. So this tariff is very much a gesture at this point. But I think what the proponents of tariffs like this would argue is that if the U.S. and Europe allow China to dominate the EV market, we will not have any domestic EV producers. And then that will give the Chinese the monopoly and will allow them to raise prices whenever they want, or we won’t have much domestic competition.
So in technologies that are deemed to be important for the future – EVs are one, semiconductors is another – the Biden administration is saying we have to nurture our domestic industries and protect them against unfair competition.
Good strategy?
I think it’s mixed. I think we have to be careful that we don’t enrich the domestic producers at the expense of consumers.
There are some times when we impose tariffs and we protect the jobs of a lot of workers. That tends to raise the price to consumers. And it’s not always obvious to the consumers that they’re paying more. So I think we have to be very careful here.
Is election year politics a factor in all of this?
100%, yes. Biden’s got a difficult problem because he can’t be seen as being weak with the Chinese, but he can’t have a tariff policy that looks like Trump-lite. And so I think they’re having a hard time explaining how their trade policy is any different than Trump’s.
And if it isn’t any different than Trump, then people might be saying, “well, then I’ll just vote for Trump.” He’s the real big tariff king. Trump’s proposals are extreme. He’s talking about a 10% tariff on all goods. And that would definitely be bad for the economy and would tend to hurt consumers and probably raise inflation.
If we’re talking about an age of globalism and an age of free trade… Are we past that, now, with both parties talking tariffs?
I think we’re at an inflection point. I don’t think we’re going in reverse. We’re still doing a lot of importing and exporting and so has everybody else.
But I think that the era in which we are doing ever more of that has come to an end, and there’s a risk that the world economy will fragment into different blocs – that we’ll trade with our friends, and the Chinese will trade with their friends. And that may be costly to the world economy, because it means we’ll be less efficient producers.
