I Just Woke Up. When Am I?

Lately, I’ve been watching a Netflix series called “DAЯK.” It’s probably the most complicated series I’ve ever seen. It’s about time travel in approximately 33-year loops, so the characters show up in 2053, 2019, 1986, 1953, 1920, and 1888, encountering the same events and making the same mistakes over and over. It involves a lot of dysfunctional families, teenage angst, and a nuclear apocalypse. Plus, it’s German, so you know it’s serious.

As I slowly make my way through its three seasons, it reminds me of some parallels in the trade landscape—both our presidential candidates appear to be doing a bit of time traveling back to their favorite eras. Several years ago, one of my columns was titled “Lost in the Fifties Tonight,” which is also a Ronnie Milsap song from, appropriately, 1986 (see above). It was about Donald Trump’s fondness for a world of traditional heavy manufacturing and relatively high tariffs.

Now it appears that President Biden may have moved back there as well, as he reflects the same interest in traditional manufacturing and has not hesitated to use tariffs as a tool of economic policy. They are not, however, hanging out together in 1953 around the pool enjoying steak (U.S. prime beef, of course) from the grill, because Trump seems to have moved back to 1888 and a pre-income tax world where tariff revenues were the biggest source of federal revenue, tariffs were large, and government was small.

In addition to proposing a 10 percent across-the-board tariff and tariffs of 60 percent or more on China, he has begun to fantasize about taking in so much tariff revenue that the United States could pay for additional tax cuts. As we all know, however, reality bites. The Treasury Department reports that in FY 2023 the United States raised $2.176 trillion from individual taxes and $80 billion from tariffs. The former is more than 27 times the latter, which suggests that a really high tariff would be necessary if the goal is to offset individual taxes. In addition, high tariffs would clearly be inflationary, particularly if they are across the board, which would capture many items like food (coffee, bananas, avocados, etc.), apparel, and footwear that are necessities of daily life for people at all economic levels. The actual revenue they produce is also hard to predict, because the higher the tariff, the more demand for the product is reduced, which means tariff revenues decline.

In short, this is a terrible idea that appears to be a solution in search of a problem. Even Trump is at a loss in justifying it. In a back-and-forth with Larry Summers, the best he could come up with was, “I happen to be a big believer in tariffs because I think tariffs give you two things. They give you economic gain, but they also give you a political game if a country is out of control . . . With tariffs, it gives you a tremendous power.” Of course, when he tried to employ that power against China to persuade them to change their economic policies, he failed. Leverage may be a good tactic in the New York real estate business, but dealing with sovereign countries is a lot more complicated.

President Biden, despite also becoming a Tariff Man, is at least using them strategically by imposing tariffs on selected items where he believes maintaining a U.S. production capability is essential to our national security. His problem will be defining what is important to our security and fighting off efforts to broaden tariffs beyond those items.

Our time travelers also face the inevitable balloon-squeezing problem that I discussed last week with respect to electric vehicles. Tariffs invite circumvention, and the Chinese have become very good at it. Sometimes it is outright fraud—shipping a product to a third country and simply relabeling it as a product of that country. More often it involves exporting to a third country and doing enough further work there to legitimately qualify it as a product of that country. The latest trend, exemplified in the case of solar panels, involves Chinese companies setting up entire manufacturing facilities in third countries and making all or most of the product there, just as the Japanese have done with automobiles in the United States.

The lesson is that there is always another move, and governments that do not anticipate them end up in an endless action-reaction loop as they try to deal with the unexpected developments and collateral damage that always leave them one step behind. Things were not that complicated in 1888 or 1953, which may be why the candidates seek respite there. Unfortunately, the rest of us can’t go back with them—their decisions affect real people in real time here in 2024. Election years always produce a surplus of bad ideas, but we should all hope that candidates for the highest office do a better job of thinking through what they propose.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.