- “No nation was ever ruined by trade, even seemingly the most disadvantageous.” (Benjamin Franklin, 1774)
- “I think all the world would gain by setting commerce at perfect liberty.” (Thomas Jefferson, 1785)
- The new Republic holds “…abundant reason to be convinced, that the spirit for Trade which pervades these States is not to be restrained.” (George Washington, 1785)
Number Six: This is the sixth consecutive column on international trade. Why so many? The topic is: 1) hugely important to agriculture and the beef industry; and 2) often misconstrued by protectionists. However, this column is the most foundational.
RCALF And Tariffs: The previous column highlighted a recent RCALF press release touting the benefit of tariffs based on this premise:
“…let’s go back in history to a time when America’s economy was a wealth-producing engine and America was an industrial and agricultural superpower…the Tariff Act of 1789…was passed so America could use import duties, or tariffs, to offset the inequity in the costs of production and manufacturing between America and the countries from which she imports. But it was also passed to generate revenues for the U.S. Treasury as was then described by Congress as the means of supporting the government and discharging the debts of the United States.”
HIST101: While that might appeal to one’s sense of patriotism and/or nostalgia, it provides only a partial and misleading view of history. Some further context is necessary.
The Framers were pragmatists (more on that below) – NOT protectionists. As demonstrated at the top of the column, their overarching philosophy was bent towards free trade. Dr. Doug Irwin (Clashing Over Commerce) explains it best: “As students of the Enlightenment and opponents of British mercantilism [i.e. Corn Laws], the Founding Fathers favored free and open commerce among nations and the abolition of all restraints and preferences that inhibited trade.”
That overarching philosophy is best demonstrated by Founder’s inclusion of the Commerce Clause in the Constitution. The significance can’t be overstated. It effectively removed any/all trade barriers between states in the Republic and prevails as a cornerstone of U.S. prosperity. That principle holds true, not only across state lines, but also across international boundaries. (In light of that, like Election Cakes, we should consider baking Commerce Clause Cakes.)
Trump / Biden Tariffs: Fast forward to the tariffs enacted by the Trump Administration and remain largely intact under the Biden Administration.
First, let’s consider the direct costs. The tariff tax burden falls to consumers and immediately served as a drag on real income (see Amiti, Federal Reserve Bank of NY, et al.). The outcome being longer-run reduction of GDP and job creation (see Tax Foundation).
Second, there’s also consideration of secondary consequences – namely, retaliation. What are the implications for agriculture and rural economies?
- USDA Economist Stephen Morgan explains retaliatory tariffs have hindered opportunity for farmers and ranchers: “Across all commodities and States, annual U.S. losses from retaliatory tariffs were estimated to be $13.2 billion from mid-2018 through 2019.”
- Meanwhile, the World Trade Center, Montana notes that retaliatory tariffs, “…can be felt broadly across Montana. Farmers and ranchers are experiencing decreased market opportunity and manufacturers are facing increased input costs that must be passed along to their customers.”
Tariffs Are Bad Medicine: As noted previously, pragmatism led to passage of the Tariff Act; the government needed funding. After all, income tax didn’t exist until passage of the Revenue Act in 1913. And so, in a post-1913 world, tariffs no longer represent a necessary source of revenue (NOR any other purpose - except those of special interests – hence RCALF’s promotion of them).
Given that reality, the Founders would likely find tariffs even more objectionable in today’s world versus the ideals outlined 200+ years ago. Accordingly, Milton Freidman, speaking directly to agriculture, echoes those sentiments and Franklin’s observation below:
…the U.S. has been a great nation and we have prospered despite the tariffs…But we could set a great example to the world and benefit the world as a whole, contribute not only to prosperity but to peace around the world, by moving in the direction of free trade…So in the name of both prosperity and world peace there are few steps that we could take which would contribute more than a complete move toward free trade. (Producer Versus Consumer, Landon Lecture, Kansas State University, 1978)
“The more free and unrestrained [trade] is, the more it flourishes…Most of the restraints put upon it seem to have been the projects of particulars for their private interest, under pretense of public good”. (Benjamin Franklin)
Nevil Speer is an independent consultant based in Bowling Green, KY. The views and opinions expressed herein do not reflect, nor are associated with in any manner, any client or business relationship. He can be reached at nevil.speer@turkeytrack.biz.
