Economics Matter
Economics, especially macroeconomics, is not for the faint of heart. It is complicated and moves at an incredible pace. If you aren’t a fan of mathematics, you especially won’t enjoy the endless statistical analyses of economics. But it impacts everyone’s lives. Everyone produces and consumes. Blow that up on a large scale and you have economics. Then, when an economy begins to struggle and jobs are being lost, everyone feels it.
Whether we like it or not, money and markets are an essential component of our lives, and moral reflection on how best to manage them is imperative. Given the Godzilla-sized tariffs announced, this provides an important chance to consider whether they are good and just.
100 years ago during the Great Depression, a period that introduced one of the largest tariff regimes until today, Bernard J. Reis and John Flynn wrote the following:
Simply stated, honesty plays little part in American business. Our morality, on the contrary, in a game of cards or in sports is irreproachable. And so it is that we are gentlemen of honor when engaged in life’s pastimes, but devoid of it when engaged in serious pursuits.[2]
While these words were published in 1937, they remain true today. Most think of Wall Street as corrupt. Similarly, our elected officials inhabit their own “swamp.” Honesty and honor aren’t virtues we’d often use for them. I would argue that the use of a tariff as a broad and expansive economic policy is likewise dishonest and dishonorable—it is both bad and unjust. But let’s give our elected officials the benefit of the doubt. Let us say the tariffs are being employed with the purest goals. Even so, good intentions alone do not make for virtuous actions or ends. In the case of tariffs, neither the means nor the ends are good or just. Therefore, Christians (and any reasonable person) should be, at minimum, skeptical of expansive tariffs. At least, that’s what I argue.
What’s a Tariff?
Let’s start with some basics. What is a tariff? It is a tax on international trade. Anything that comes into our country is taxed with an additional fee. For example, I was in Morehead City, North Carolina last week with my family and a large container ship from Sweeden had arrived and was unloading lumber (a ship large enough for my boys to keep asking if it was the ship that crashed into the bridge in Baltimore—something they apparently will never forget). Without tariffs, you’d pay the normal price. Let’s say it’s $100 to make the math easy. After tariffs, you’ll pay that plus whatever the cost of the tariff is. If you had to pay $100 without a tariff, when you add a 25% tariff, you’re now paying $125.
Who pays for the tariff? The company importing the goods does. But that company isn’t going to just pay a higher cost for the same good, especially if they operate on a thin profit margin— otherwise they’d go out of business! For example, if the company buying lumber had $10 in net-profit per import of lumber, could they continue to exist if they are now paying an additional $25 if they didn’t pass the cost on to the consumer? No. They’d be operating on -$15! So, to survive, they increase the cost of the good which gets passed to the end consumer like me and you. Now, when I go to Lowe’s or Home Depot, the price of lumber has gone up by 25%. If I paid $4 before, now I pay $5—a 25% increase for the same item. So, who gets the tariff money? The government.
The Bad News: Inflation
It is not hard to see one of the unfortunate consequences of tariffs from this example: inflation. Your money no longer holds the value it used to have. Inflation reduces the value of money because it leads to a general increase in prices, meaning that with the same amount of money, you buy fewer goods and services than before. If you had $1,000 to buy an item, you’ll now need $1,250 to pay for the item. Tariffs create this inflationary environment by increasing the cost of goods without a corresponding increase in value.
Why is inflation bad? Let’s quickly turn to Juan de Mariana (1536–1624) as an exemplary resource to think about this. He was a Spanish Jesuit priest, theologian, historian, and more. He is probably not on your radar for resources in thinking about tariffs. What can a Spanish Jesuit teach us about modern economics? Actually, a good amount. The basic principles of economics and inflation do not change. If we knew our history better, we’d be better equipped to tackle the present. Just as de Mariana lamented himself:
Greed causes blindness; financial straits create pressure; we forget the past. In this way, the cycle of evil returns. Personally, I wonder if those in charge of affairs are ignorant of these things. If they do know them, I wonder why they so rashly, despite their prudent knowledge, wish to rush headlong into these perils.[3]
History teaches. In a short treatise written by de Mariana in 1599, he explores the topic of money and inflation. He explains the difference between the intrinsic and natural value of money and the legal and extrinsic value of money, suggesting that they should be the same.[4] Governments should not decree that $1 is worth $10 or worth .10 cents. Artificially adjusting the value of currency destabilizes economies and robs people without their consent. As de Mariana explains, “Money was invented to facilitate trade, and money that better and more opportunely accomplishes its end is more acceptable.”[5] If the currency rate is changed, it no longer “opportunely accomplishes its end.”
So, when the King (or the government in general) adjusts the rate of currency, we are encountering a problem. Repeatedly, de Mariana explains that the King “is not empowered to make fresh profit from debased money.”[6] Changing the value of money is against right reason and natural law. De Mariana even calls it a sin to change it![7]
But tariffs do just this. Instead of printing more money to reduce the value of what’s in circulation, you tax goods to a greater degree, and debase the value of money, all while pocketing the profit. It’s simple math. If these were minor 1-2% tariffs, certainly you can debate them. But 30%, 40%, or more? That is going to directly impact the cost of goods for the nation and lead to significant inflation, devaluing money. But even if the people of a nation support this measure, de Mariana would caution that it is surely “fatal.”[8]
Therefore, tariffs should be rejected as both bad and unjust. They steal from the nation. Not only do they lead to direct inflation from price increases but also from lower demand for US treasuries. In short, foreign Treasury demand correlates with our import volume. So, if tariffs lead to reduced imports, future Treasury demand lowers. And if imports drop, tariff revenue likewise drops, and we then need to issue more treasuries to address the budget shortfall. But doing so often correlates with higher inflation. I digress. Tariffs also encourage poor quality and industrial stagnation. But I’ll leave that discussion for another day.[9]
The Good News?
Sometimes there is a greater good and the lesser good should be sacrificed. Maybe inflation is a price worth paying to achieve some other end. That’s why tariffs might be good! Remember, the general purpose of the tariff is to discourage international imports to “protect” something. Maybe tariffs are necessary to protect domestic jobs. That’s a worthy cause. Maybe tariffs are necessary to protect the value of our economy. Maybe. But not realistically. At least, they’ve never been able to accomplish these goals in the past, if history is any indication.
Do tariffs protect an economy, reverse the trade “deficit,” or keep you from being a “loser?” No, of course not. That’s partly because “winning” and “losing” trade isn’t simply about whether you import or export more goods. Winners and losers are created regardless of whether you import or export.
Whether tariffs exist or not, we’d export more if our domestic price was cheaper than the world price and we would import more if our domestic price was higher. So, with tariffs, the world price becomes artificially higher, resulting in the cheaper product being domestic. That means fewer imports which means a lower trade “deficit” since, in theory, we’d export more, creating a trade “surplus.” But when a country becomes an exporter of goods, domestic producers are better off but domestic consumers are worse. That’s me, you, and your neighbor taking it on the chin. When trade forces the domestic price to fall because we are importing more, domestic consumers are better, but producers are worse.[10] And so, no matter how you slice it, you’ve got a “loser” on your hands. But when tariffs are enacted, the loser is us.
Do tariffs at least protect domestic manufacturing? Yes and no. Simply read an all-too-common example from David Hebert to get a sense for the truth:
For example, the 2017 steel and aluminum tariffs did save about 1,000 American jobs. This means that there is a factory somewhere that did not close and the community around it continues to enjoy the economic benefits of its existence. This is highly visible, in terms of both media coverage and just observationally. However, those same tariffs also resulted in 75,000 manufacturing jobs nationwide being eliminated due to the higher prices of steel and aluminum. An extra job or two being eliminated per factory in America does not, however, make the national news and can certainly be dismissed in the minds of many as nothing to worry about.[11]
But maybe tariffs are just a negotiation tool. Perhaps this tariff talk as a policy is a distraction. They aren’t a long-term economic plan. They’re just threats to give us negotiation leverage. Maybe so! I tend to think that this is actually President Trump’s view. But this method is playing with fire.
If our trade partners call our bluff, we’re stuck with the bad results from the tariffs alongside hurting our economic relationships. In my view, this option is not prudent. There are other means to negotiate that don’t involve accidentally causing ourselves consequential pain.
So, What is the Takeaway?
Tariffs are not good. At least, expansive Godzilla sized tariffs that disrupt economies are not good. They hurt everyone except those in charge and the industries that are given freedom to charge higher prices thanks to a drop in supply.
We shouldn’t support tariffs like these. This doesn’t have to be a partisan approach. Republicans and Democrats have equally advocated for their share of tariffs over time when it benefited them. Saying tariffs are bad doesn’t make you either a Republican or Democrat. It makes you sane. Instead, we can think morally and economically and remind each other that tariffs are a bad means with a bad end. If we want to care for ourselves, our families, our nation, and anyone else, we’ll reject high tariffs and look to the numerous other means to stabilize and protect our economy.
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