RICHARD J GRANT: Trump exhibits deep awareness of burdens imposed by domestic taxes

Given recent news coverage, young people might get the impression that US President Donald Trump invented trade tariffs. But tariffs have a long history of widespread use up to the present, which suggests they must sometimes be useful.

Tariffs are not inherently bad, they are just a tool of economic and social policy. I recall in my younger days being told by respected elders that tariffs were a relatively inefficient tax. But deeper experience suggested that context matters — the dose makes the poison. We need to know the purpose of the tax. 

How big is the effect of a 30% tariff on a portion of SA’s exports to a particular country, compared to our top domestic income tax rate of 45%? How does it compare to a domestic VAT rate of 15%, or 15.5%, possibly soon to be 16%?

Each of these taxes has a purpose, and responsible policymakers must ask whether the purpose is worth the burden of the tax. Economics does not tell you what to do; it merely helps you understand the consequences if you do it. Policymakers cannot hide behind “science” to evade moral responsibility for their actions. 

However he articulates it, Trump appears to understand that free trade starts at home. He exhibits a deep awareness of the burdens imposed by domestic taxes and regulations that make US industries less competitive than they could be. He also knows that government expenditure exceeds tax revenue and that “too much” of that expenditure is wasted, stolen and counterproductive. And he seems to have asked the question more economists should ask: why is international trade more special than domestic trade? 

Trump’s words and actions reflect an all-too-rare understanding that his duty as an elected leader is to protect the lives, property and liberty of his people. A duty to protect and nurture one’s family is not a call to attack one’s neighbours, but rather to refrain from such attacks, unless one lives in a very bad neighbourhood.

No-one can accuse Trump of not understanding “gains from trade” and the benefits of scale and big markets. Those who measure the value of a society solely by its GDP will never understand, and will always underestimate, Trump’s depth of support from the US people.

He is old enough to have witnessed and felt the effects on families and communities of rapid economic restructuring due to globalisation and technological change over the past 50 years. Perhaps the full cost of all those cheap goods cannot be measured in dollars. 

A serious leader, one who recognises the foundational importance of family and the unexamined wisdom retained by tradition, would seek to remove any governmental structures or policies that attack or threaten those foundations.

The healthiest nations stand on personal responsibility, strong families and good relations within and between communities, which ensure survival when threats emerge. For the same reason that Nehemiah built a wall around his community, we might build walls — legal, if not physical — around our homes and our countries. 

The leaders of a nation that strives first to put its own house in order might look outward at the neighbourhood and legitimately determine that unilateral free trade is a threat to its viability. A leader who ignored such a threat would be derelict. There are events in life when over-specialisation or, rather, a lack of broad capabilities, can become expensive or life-threatening.

When Trump looks outward he sees an array of tariffs and non-tariff barriers designed to limit US exports. He also sees systematic theft of US intellectual property and nation-state complicity in the trafficking of drugs and humans into the US. Perhaps there is scope for negotiation with neighbours — and perhaps reciprocal tariffs would be a nice, peaceful tool to facilitate such negotiations. 

Trump’s imposition of tariffs at only half the rate for full reciprocity is an invitation to negotiate mutual reductions in rates and barriers. Far from starting a “trade war,” he offers a way out. How other countries respond will reveal their intent, which is an important thing to know about one’s neighbours. If they raise or maintain their trade barriers, or facilitate trans-shipment from other high-tariff countries, their barriers will be matched accordingly. 

Nothing here rules out reciprocal free trade between nations; nor does it demand such. Not all tariffs are narrowly protectionist, favouring special interests. Prudent leaders have a duty to protect their strategic interests, which includes any industries essential to that task. An unwillingness to pay the price is a sign of weakness that will be exploited by enemies. 

Trump has repeatedly called on allies and trading partners to be prudent, not weak. His tariffs were greeted by howls of indignation, but all he did was hold a mirror in front of the world — and the world recoiled. 

• Grant is professor of finance and economics at Cumberland University and a senior associate at the Free Market Foundation.