Will Free Trade Governments Be Able to Turn Down Tariff Money?
Government budgets are starting to benefit from additional duty revenue, will this change their position on tariffs?
Last November, I was discussing tariffs with the Director of Operations for a major apparel company. They are a major disruption to his business, he was fruitlessly looking for new factories that could handle the capacity he required. We discussed the short- and long-term possibilities, for his company as well as the country as a whole. Assuming that we could predict President Trump’s next move was naive at best but is necessary for businesses to plan and adjust. One of the outcomes that we discussed was that governments would grow accustomed to the increased revenues from tariffs and would not want to remove them — period.
This outcome has precedent. Income tax is a great example. The U.S. federal government instituted income taxes during Prohibition (1920–1933). They needed to make up for lost revenues from alcohol taxes. Prohibition ended in 1933 and yet we still pay income tax. People got accustomed to paying income tax, the government got accustomed to the additional income. So the tax stayed, even though Americans hate income tax! Our government can’t function without it.
