Today on Civics 101, Ron Elving takes us through Tariffs. What are they? What are the pros and cons of taxing goods that enter our country? What is the effect on the consumer? And finally, how do trade wars end?
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NOTE: This transcript was generated using an automated transcription service, and may contain typographical errors.
Nick Capodice: [00:00:02] I'm Nick Capodice.
Hannah McCarthy: [00:00:02] And I'm Hannah McCarthy.
Nick Capodice: [00:00:03] And today on Civics 101 we answer question for Sara Mottaz of Seattle.
Sara Mottaz: [00:00:08] Well I've been interested in tariffs lately because they've been in the news so much.
Archival audio: [00:00:11] The Foreign Ministry then clarified and confirmed that China in fact did retaliate with its own tariffs... midnight eastern time, the U.S. raised tariffs on 34 billion dollars worth of Chinese goods.
Nick Capodice: [00:00:24] It's one of those things that whenever I used to hear about tariffs. I would just say oh god I'll learn about this later.
Hannah McCarthy: [00:00:29] Right.
Nick Capodice: [00:00:29] I can't learn about this now.
Sara Mottaz: [00:00:31] I know! I know, that's why I asked the question. We've always had tariffs in place but I don't really understand how they came about to begin with and what changes we're making to tariffs now and how they affect our country and the world economy.
Nick Capodice: [00:00:44] To learn about tariffs we interviewed Ron Elving.
Ron Elving: [00:00:47] I am the senior editor and correspondent on The Washington desk at NPR. I'm also part of the faculty of the School of Public Affairs at American University.
Nick Capodice: [00:00:57] It's worth noting we interviewed Ron before the trade war with China. However we did want to know the basics of what is a tariff. Why do we have them.
Hannah McCarthy: [00:01:04] And how does a trade war end? Why don't we start off by defining a tariff.
Ron Elving: [00:01:12] A tariff is simply a tax that is imposed on goods that are being imported into ones country. So if the United States passes tariffs, we tax the goods of other countries as they arrive in the United States and countries impose tariffs on our goods and those taxes have to be paid by the owner of the goods when they enter someone else's country.
Hannah McCarthy: [00:01:34] So it's the person who is providing the goods who is paying the tariff?
Ron Elving: [00:01:38] That's right. It's the manufacturer who is responsible for that particular tax it has to be paid to the government of the country that is governing the docks in the port or the airport where your goods are arriving.
Nick Capodice: [00:01:52] Now is this just a way to make money or is there another reason we've always done this?
Ron Elving: [00:01:57] Oh it's certainly both. It is magnificently a way to make money and for much of American history it was the main way that the United States federal government made money. There was no federal income tax until the 20th century with a brief exception during the Civil War and the federal income tax as we know it today is really a creation of the WWI period. So the big source of income for the United States government and many other governments was taxing goods that came in from other countries. But that was only part of the reason. That's pretty good reason in and of itself of course. And by the way that the first Tariff Act passed by Congress was the second bill that Congress passed. The very first session of Congress in 1789 right after they passed a bill for oaths of office and after they'd gotten that little formality out of the way they started passing tariffs. That is how important and fundamental it was to the original United States government. You could even argue that to some degree the American Revolution and then later a civil war had a lot to do with tariffs and the conflicts between the United States and Great Britain. The conflicts between the regions of the United States were largely tariff driven. So there were a lot of other purposes besides just raising money. For example trying to provide some money so that America in its early days could build up the kind of industries that might eventually compete with Great Britain. And keeping those goods from Great Britain expensive so that new manufacturing enterprises in the United States could make cheaper goods and sell those to their fellow Americans and get a good start in the world of commerce. Otherwise it was difficult to compete with everything that was coming over the Atlantic.
Nick Capodice: [00:03:43] So it's a good way to start. And yet here we are in 2018. Why do we still continue to be raising tariffs and increasing tariffs?
Ron Elving: [00:03:50] At this point. It's a bit of a throwback. What's going on with a Trump administration right now is very much a throwback to another era because the United States after having been a leading protectionist power if you will of high tariffs and other kinds of restrictions and other people's goods all through the 1800's, half of the 20th century, after 1945 after the destruction of Europe by World War II. There was a sense that we needed to help the rest of the world get back on its feet. So of course we had the Marshall Plan in the late 1940s but probably even more important than that, the United States really switched after World War II to being a free trading power. That doesn't mean we had no tariffs.
Ron Elving: [00:04:33] Not by any means but we changed the emphasis in our trade policy and our foreign policy to be not so much isolationist as we had been before World War II as to be a world leader as to be the country that made sure the entire world was working on the same sort of currency system. We largely set the value of currencies under a system that was devised largely by the United States and we were very generous in letting other countries sell their goods into America. China, Japan, certainly the countries of Europe, other countries around the world, got a good deal by selling their goods into the United States and we were far far less protective than we had ever been before. And we had long since turned to other sources of revenue to actually run our federal government. So in 1945 was a huge watershed year. Now more recently as we have seen more trade protectionism grow up around the world this has become more complicated. And Donald Trump feels that we have been progressively taken advantage of over the last several decades and that even when we negotiated what seemed like a kind of fair deal such as the North American Free Trade Agreement known as NAFTA that goes back to 1994. Even when we got something like that done with Canada and Mexico that it was a better deal for Canada and Mexico than for the United States. That is debatable. There are certainly lots of people who defend NAFTA but Donald Trump found a lot of political payoff if you will he found paydirt by arguing that NAFTA was a bad deal for us that the proposed Trans-Pacific Partnership was a bad deal for us and that our relations even with the European Union perhaps our closest economic allies in at least a geo political sense posing them against Russia were also not in our best interest and that we were getting ripped off. In his view.
Hannah McCarthy: [00:06:31] So what is the intent of the tariffs now? Are we trying to make more money or are we trying to protect our industry?
Ron Elving: [00:06:38] It's really to protect our industry and to, I'm going to give an opinion here, but I believe that the real intent here is to some degree to make a show of punishing some of our trade partners who are also our military allies NATO North Atlantic Treaty Organization which is largely the same group of countries as the European Union. President Trump feels that these folks have been taking advantage of us. That Japan for example which we have included under our nuclear umbrella ever since World War II we have protected Japan we have been their military big brother that they have then turned around and profited from selling us their cars, but restricting what we could sell there and that now hour into the same kind of relationship with China although we certainly are not their military ally. We take a lot of their goods and they are more restrictive about what they were let into their country and all of this while it reflects that role that the United States has been playing in the world for the last 70 some years. While it reflects that role, Donald Trump says it's a bad deal for the United States and that our prosperity has actually been lessened by our efforts to increase the prosperity of the global economy. So we get this contrast between America first, we should just be taking care of our own interests and no one else's and the concept of globalism which is that a rising tide lifts all boats and all world economies doing better is better for the United States as well.
Hannah McCarthy: [00:08:12] So what does this mean for the consumer in either country when you've got these retaliatory tariffs going back and forth. Is that just jacking up the price globally?
[00:08:22] Yes it is because some of the money is not going to the company that has the goods to sell, it's going to the governments. The United States government when we impose the tariffs, the governments of China or Japan the governments of the European Union are collecting these taxes and they're coming from the consumer and they pay them at the exact same time they buy the goods. So this has been the great argument against tariffs over the years is that governments should not collect their revenue or get their revenue in this sort of subterranean way or slightly sneaky way by making it be part of the price that you pay for goods. Now in Europe they also have something called a Value Added Tax which does the same thing. Some people have argued for that in this country. But when you charge people more to get their goods into a country where they're going to be bought and sold, you are adding to the cost of the goods, adding to the cost to the consumer without actually giving the consumer any more value and without giving the company producing the goods any more revenue. The government interposes itself. And that's why philosophical libertarians, people who are political libertarians, people who believe in a free market, do not like tariffs; see them as just another form of taxation and see them as a kind of beggar thy neighbour approach to world trade.
Ron Elving: [00:09:46] If you think world trade is the single greatest driver of the rising of the human species from our earliest origins hunting and gathering to agriculture etc etc. including cultural improvement all over the world and eventually greater political understanding, if you see world trade as the key to all that then tariffs are a mortal enemy.
Hannah McCarthy: [00:10:10] We hear about Trump imposing tariffs. Does the president impose the tariffs does Congress impose the tariffs who makes the decision?
Ron Elving: [00:10:17] The Congress can pass tariff acts and impose tariffs. The president can also do it when Congress gives him the authority to do so. And Congress in recent years, particularly in the most recent decade or so, has been quite willing to give the president wide latitude particularly when a particular tariff can be portrayed as being a measure for national security. So for example with the steel and aluminum tariffs that really got this trade war going, this was justified by the Trump administration which did it just by fiat as a national security measure. In other words if we allow our steel and aluminum industries to get smaller and smaller eventually we will not be able to make our own weapons with our own metal here in the United States. And if we can't do that then we can't win a World War II. We can't be a world superpower unless we can make our own weapons with our own metal. And that has to mean a steel and aluminum industry here in the United States that is second to none. All right that's an arguable point. That's certainly something that someone could make a case for.
Ron Elving: [00:11:27] And Congress has basically stood back and said oh gee if it's national security then fine of course the other side the free traders will argue that there's no evidence that our defense capacity has been in any sense diminished. There's no evidence that our current arrangement for some imported steel and aluminium to be part of our defense industry is making us less safe. There's certainly no evidence that Canada is going to deprive us of whatever metals we might need for our national defense assuming of course that we still see ourselves as allies of Canada and we might very well see the North American continent as our true home and military strategic terms. So there could be questions about this national security justification by the current Congress, which is Republican controlled in the House and Senate, is in no mood to challenge President Trump on this particular issue. Now they may at some point rise up and challenge him on some of the other ramifications of this trade war. And there certainly are many people in Congress who are most disturbed at at least the retaliation in the trade war, for example Republican congressmen and senators from farm states. And there are many. The Republicans dominate in the farm states and they have many people on the ballot this fall who are worried because they see for example soybeans suddenly being the subject of tariffs in Asia and Asia eats a lot of our soybeans and we sell a lot of our soybeans to Asia. So if suddenly that trade is inhibited, not necessarily stopped of course but just cut back a little bit, that means a lot of farmers in the United States are going to be stuck with a lot of soybeans they can't sell. They've overproduced. They're going to take a loss. In some cases it may be a highly significant loss. And those Republican members of Congress and senators might just be feeling that even as soon as the midterm elections this fall.
Nick Capodice: [00:13:24] So you use the word trade war several times. How do trade wars end?
Ron Elving: [00:13:29] Trade wars can only end really with new agreements between the participant countries to cut it out. Now this can be done in a multilateral way. We have had over the years a series of meetings that went on not just you know a week or a month but for years where countries had delegations that would go to international locations for example Montevideo Uruguay was the site of some of these negotiations for a number of years it was called the Uruguay round. There was also a round of such negotiations back in the 60s that was known as the Kennedy Round because it had been initiated by John F. Kennedy when he was president and these negotiations work out elaborate and extremely detailed schedules of tariffs between countries. Or they just eliminate those schedules and say we're going to have free trade in this particular commodity, free trade in this particular manufacture. More often they're working out the details of the actual tariff schedules and those can lower tariffs or raise tariffs. And usually you're getting together to agree on lowering tariffs so as to have more trade so as to increase worldwide commerce. That's what these negotiations have been. And there is an organization there is a working document that's known as the General Agreement on Tariffs and Trade. GA T.T. often referred to as GATT and you'll hear people talk about GATT negotiations.
Ron Elving: [00:15:01] So that's how tariffs are lowered over time. That's how they're brought under control. Or you can have free trade agreements such as NAFTA the North American Free Trade Agreement or the Trans-Pacific Partnership that was negotiated with a number of Asian countries, not China. China was not part of the Trans-Pacific Partnership. In fact one could say TPP was intended to oppose Chinese efforts to impose its trade hegemony or its its domination of the economies of Asia and any anyway TPP was negotiated over the last several years and the first thing he did practically within his first week in office was Donald Trump withdrew US from the Trans-Pacific Partnership.
Hannah McCarthy: [00:15:46] Ron thank you so much.
Ron Elving: [00:15:48] Thank you Hannah. Thank you Nick.
Hannah McCarthy: [00:15:49] That was Ron Elving the senior editor and correspondent on The Washington desk at NPR.
Nick Capodice: [00:15:54] If you want to hear more Ron Elving you can check out our episode of the Electoral College at civics101podcast.org. There you can listen to all our old episodes and you can get transcripts.
Hannah McCarthy: [00:16:04] This episode of civics one on one was produced by me Hannah McCarthy.
Nick Capodice: [00:16:06] And me Nick Capodice.
Hannah McCarthy: [00:16:09] Our executive producer is Erika Janik, our team includes Ben Herny, Jimmy Gutierrez, Taylor Quimby Justine Paradiz and Jacqui Helbert. Music In this episode is by Ryan Little.
Nick Capodice: [00:16:18] Civics 101 is a production of NHPR, New Hampshire Public Radio.