BACK in 1906, an insurgent politician called Joseph Chamberlain (once known as Radical Joe, he had switched to the Conservatives over home rule for Ireland) lured the government into a campaign in favour of tariffs. The result was a devastating defeat for the Conservatives. The opposition Liberal party recognised that tariffs were a tax on the goods bought by the poor, in particular food and warned that the policy would lead to a «smaller loaf». They portrayed tariffs as «stomach taxes».
A hundred years ago, then, it was easy to make protectionism unpopular. Now it seems, despite the prosperity brought by 70 years under a more open trading system, that opinion may have changed; tariffs are favoured by «populist» politicians.*
The trick for modern populists been to focus on the positive benefits to American workers in terms of jobs, rather than the adverse impact on consumers. In fact, protectionism is highly unlikely to restore american manufacturing jobs, which are under threat from automation as well as globalisation, as our recent briefing showed. It is also And that is partly because in a world of low tariffs, consumers have become pretty blasé about buying goods from all over the world. «You don’t know what you’ve got until you lose it» as John Lennon sang. Even the small level of existing tariffs fall most heavily on the poor, academics reckon, taking 1.6% of the after-tax income of the poorest decline, against 0.3% of the richest.
So the anti-tariff campaign will have to campaign hard to show the evidence of the harm done to consumers. America is a net exporter of food so it is hard to use the same images as worked so well 100 years ago. Still it is in the nature of modern trade that developed countries sell high-added-value goods and services (like software() and import raw materials and low value added goods from developing countries (cheap clothing, for example). A study in May by the National Foundation for American Policy found that
Presidential candidate Donald Trump’s proposed tariffs on China, Mexico and, by implication, Japan would be ineffective in shielding American workers from foreign imports, since producers from other countries would export the same products to the United States. Were such tariffs to be “effective,” then the tariffs would impose a regressive consumption tax of $11,100 over 5 years on the typical U.S. household. The impact would hit poor Americans the hardest: A tariff of 45% on imports from China and Japan and 35% on Mexican imports would cost U.S. households in the lowest 10% of income up to 18% of their (mean) after-tax income or $4,670 over 5 years.
But what if the US imposed a worldwide tariff, rather than singling out specific countries? The effects would be even worse.
When we calculate the burden as a percentage of household income, we find that households in the lower income deciles would surrender a higher portion of their income under a Trump tariff than higher income households. A Trump tariff against all countries costs households in the lowest decile 53% of their annual income, while it would cost households in the highest decile 7% of their incomes. The tariffs would cost households in the second income decile 20% of their annual income – a figure that declines as we move up the income deciles. In other words, a Trump tariff against all countries (or even one against only China, Mexico and Japan) would be a regressive tax that burdens lower income households more than higher income households.
Combine this with a set of tax cuts that will benefit the rich most and it seems clear that this aspect of populism ought not to be popular at all. Tariffs may not mean a smaller loaf but it will mean that Americans lose their shirts.
* admittedly this category is ill-defined. In my view populism defines policies that may seem popular but would have negative effects, either on individual rights or (often) on the very people that support them