“Congress, Congress, don’t tax me; tax that man behind the tree”
Thinking About Tariffs
A duty is a subset of tariffs, and while all duties are tariffs, not all tariffs are duties.
First, personally: free trade, free men & free markets. I shop in China like it was Facebook Marketplace. We have a Chinese employee/associate in Guangzhou, and it is easier for us to source some things there, and frankly, many times it is easier for us to trade with the Chinese than it is to get service and prices from our vendors in the US. We have sold into China also, Many, many container loads of Eastern Red Cedar cants, that were made into clothes hangers by the Chinese and sold to the Japanese. The Chinese businessmen want our business, government is not involved. The tickets for Hong Kong are bought and I am going to China next month. I go often. I don’t know of anyone who has benefited personally and financially more than myself from the United States lackadaisical immigration control. I do not like paying taxes. So… those are my bona fides; self-interest is not my pursuit if I speak in favor of immigration reform, customs, duties, quotas, and tariffs. I’m busy riding the globalization wave to prosperity and financial independence.
Trump likes tariffs. Why? The reasons are both economic and political. This essay is going to look at those reasons and try to understand them in light of the reality of ‘globalized’ trade. But first let's answer this question: Why does the president have such broad authority over this type of taxation, which the constitution makes the province of Congress? The 1930 Smoot Hawley Tariff Act which passed Congress and President Hoover reluctantly signed was a bad bill. Full of favoritism for a multitude of constituents, especially farmers, it was at the worst possible time and sand in the gears of world trade at the onset of the Great Depression. From that time forward, Congress has gradually given the all their keys to the tariff liquor cabinet to the executive. Probably a big mistake, but typical of all the 20th century Congresses to avoid the ire of voters by shifting responsibilities for policy to the other two branches of the government.
Death and Taxes. Like the poor, we will have them always. While there may be no such thing as a good tax, some taxes are better than others. Are tariffs a good way to tax? In 1789, Congress thought so. The first and the oldest federal agency is the US Customs Service. First, let us acknowledge all taxes are a drag on commerce, industry and trade. Period. Every tax is a tax on profits. Every tax is paid by, “we the people.” Everyman is standing behind the tax tree. But, by inclination, we hate direct taxation the most. The Whiskey Rebellion of 1794 was over the direct taxation of whiskey. Shay’s Rebellion (Massachusetts - 1787) was over property tax collection and debtor’s prison. In Nebraska we still have personal property tax on business property. It is generally referred to as the “liars’ tax.” How much payroll tax would get paid if wage earners had to write the government a check at the end of the year? Tax collectors (money changers) in the Bible? Not beloved.
And everyone orders their affairs to minimize the tax they owe and the tax they pay.
Prior to the imposition of the income tax, the federal government primarily funded itself through excise taxes, tariffs and various customs taxes and duties. It was a time my grandfather referred to as, ‘before taxes.’ He meant, “before direct taxation.” As you can see in the data graphed below, payroll and income tax have made up most of the federal revenue for the last eighty years.
Investment guys call copper, Dr. Copper, like in, Professor Copper. They think you learn a lot about the markets and the economy watching copper prices. It’s the ultimate leading indicator. It’s not a precious metal but it is a valuable, very useful metal. It trades as a commodity, not a store of value. Copper production ramp-ups tend to mirror closely economic expansion, because everything we build uses copper. Let Professor Copper teach us something about history, the market history of his metal in America.
My company, Copper Care, has two sources for copper hydroxide (Cu(HO)2.) One from Germany, one from Mexico. We buy several tons a year and the Mexican Cu(HO)2 is cheaper than the German, but not by much. We usually buy the Mexican, but when we export to the EU we have to use the German copper. The German company, previously called, Spiess Urania, is now called “Cosaco” and it’s big, but I don’t know how big. I was talking to my Cosaco salesman last week and he told me, almost speaking to himself, “We have to start reacting the copper hydroxide at our new Houston plant instead of Hamburg because of the tariffs.” Move the location to the US and lower your costs. I understand. The Germans want my business, and they need a competitive price. Trump imagines a lot of this sort of increase in economic activity will occur in the US when he imposes tariffs.
Here’s a little more history about copper. Up until the early 1990’s the US was the number one producer of copper in the world and had been for over one hundred years. How many US primary copper smelters were operating in say, 1970? More than twenty, at least. The ASARCO copper smelter in Tacoma, WA closed in 1985. For seventy years, the Tacoma smelter had been the largest private employer in Pierce County, WA, employing well over a thousand workman.
So, what is the copper situation today?
In 1980 the US produced 1.2M copper, US production in 2025 will come in at 1.3M. That’s MMT, million metric tons. But remember all those US primary smelters back in 1970? The US in 2025 has three primary copper smelters, but one is not operational. No expansions or new smelters are planned in the US. China has fifty-five primary copper smelters, far and away the largest primary smelter production of copper in the world. In 2024, the US sent 460,000 tons of copper ore concentrate to China for primary smelting. Does anyone wonder why Trump has decided to exempt copper from tariffs, …at this time? US copper reserves, once the largest in the world, has dropped precipitously over the last thirty years. Exploration, ie, prospecting is expensive. Nobody is doing it. Nobody has invested in US copper exploration in over thirty years.
Free trade didn’t do this to Professor Copper. Endless environmental litigation did this to copper. The last lead smelter closed in the US in 2013. Lawsuits, not regulations, are by far the worst enemy. The US needs lead, at least for bullets and other strategic uses, like nuclear. There ought to be a certain market for lead in the US. But the uncertainty caused by environmental litigation destroys investment. Do you want to invest your 401k in the US smelters? The environmental regulations are beyond burdensome, but if they weren’t constantly changing it would help. In the final analysis, it is the litigation that makes uncertainty triumph over investment. America is a litigious nation, sometimes to our own detriment.
Trump sees the world through the eyes of a competitor. He imagines the US is in competition with other countries. That is a very conventional understanding of global politics. Perhaps it’s natural politics. The era of free trade began in earnest following World War II. The whole NAZI idea of Lebensraum, living space for the German people, was rooted in the idea of ethnic competition. Evolution is biological competition, the survival of the fittest. Communism is literally class conflict, sometimes class warfare. The whole idea of progress is competition, a synthesis of competitive ideas and inventions. Competition is a terrible zeitgeist, but it’s the only zeitgeist we got.
Common markets (free trade agreements) are supposed to be a remedy that binds economies together, so mutual dependency rules out military conflict. Perhaps, but you can’t rewire human nature, men are competitive. Nations are an extension of human nature. But as to avoiding war, it’s worth a try. The Age of Empire is definitely over. Free trade always turns out to be a successful experiment. But it doesn’t alter the fact, in life there are winners and losers. Everybody gets a prize, but every prize is different. Sore losers are as old as Cain.
Trump understands that in any market, buyers rule. I can’t sell anything without a buyer, not in my business. To say it’s a seller’s market is another way of saying there are a lot of buyers shopping right now. The US is a huge market. For profits sake, China needs the US to buy, way more than the US needs China to sell. Trump knows this. DJT looks at our strong buyers’ position in world markets and he figures the US can’t lose with tariffs. Still, ash-canning half a trillion annual dollars of Chinese imports all at once is bound to create too much uncertainty and disruption in the US.
What Trump doesn't understand (nobody seems to understand) is how rapidly the internet is homogenizing the Chinese people into “westerners.” This is Xi's biggest problem governing China. Yes, a trade war hurts China more than it hurts the US. But Xi has been doing a pretty good job of hurting the Chinese economy all by himself. Control is more important to Xi than prosperity. The internet is destroying the government's control of information. Covid was a temptation and in the end the Emperor in China was shown to be without clothes. Long after the clown show in the West had hurriedly tried to get their pants back on, Xi was still pounding the drum on zero Covid, until the Chinese White Paper Protests scared Xi enough to pretend like Covid never happened. Xi would love to have an enemy to blame for his floundering economic growth. Trump will learn this, but how quickly? This past Christmas all the teachers in China got detailed instructions on how to push back against Christmas. The government in China is afraid of Christmas. That is not a show of confidence.
Trump imagines he can force nations to negotiate trade agreements more favorable to the US. We can collect more tax revenue. Tariffs are very popular with Trump voters because they are indirect taxation. Using tariffs the US can create more jobs, especially in primary manufacturing and extraction. The US will be producing more energy, which means lower energy prices for Americans and more export earnings for producers. We are more competitive if we produce more, we are a richer nation, we have a bigger GNP. At least that's the way the story goes.
His very recent 90-day pause in tariffs is addressing the biggest negative in his whole scheme: uncertainty. Markets tend to freeze up if things get too uncertain. Negotiations collapse if there is too much uncertainty. Trump figures he can get all he can get and then pull back from the brink. He doesn’t think it’s too risky. And his risk taking is part of the package when you elect Trump. The current system of endless environmental litigation makes Trump’s tariff uncertainties look like small potatoes, especially if you are a primary producer or investor. If climate change is dead, if environmental litigation can be strictly limited, there is a boom coming. The administration will soon start unilaterally deleting all sorts of environmental and banking regulations without public comment. His administration is going to declare them unconstitutional. My prediction is he will get away with some of it, but not all of it. There will remain a lot of uncertainty. But in any case, the climate emergency is over. No one will pay for it anymore and very few true believers are left.
Let me close with why I think climate change is a warm corpse. It is more than Trump wishing it dead. The 1st world’s ‘net zero’ ambitions are slowly and dishonestly being abandoned now by all and sundry, the target reductions are too expensive, and simply unattainable. Then there is the data:
Looking at India and China’s coal consumption, where they were and where they are now and where they are going: million metric tons = MMT
India: 2013 circa 400 MMT of coal burned annually-
2030 anticipated burn 1800 MMT
China: 2013 circa 2000 MMT of coal burned annually-
2030 anticipated burn +5000 MMT
USA: 2013 477 MMT of coal burned annually-
2030 anticipated burn circa 400 MMT
Trump sees the US forfeiting the game. What do you think, dear reader? I mean, what could possibly be the point of reducing the US coal burn to reduce global atmospheric CO2 emissions when those emissions are growing exponentially in just China and India compared to the entire annual US coal burn? Wouldn’t be better for the US to be dominant in energy production? Trump promises, “A Golden Era of Energy Dominance.” Tariffs won’t make much difference, but they will make some.
In closing: Tariffs, stripped of their current uncertainty, are just a tax on the American people. Maybe, as taxes go, not a bad tax, but definitely a drag on trade. Global trade can’t be blown up. There is no road back. The network has made world trade as certain as the sunrise. So, maybe tariffs will not be a big drag on trade. The uncertainty about extraction and refining is a big drag on trade. Environmental uncertainty peaked ‘day one’ during the last administration with the creation of the Office of Environmental Justice, which was the environmental litigator’s dream come true. Day One of the Trump administration, the Environmental Justice Initiative was taken out back and never heard of again. Whatever happens, I think the global warming freak-out is over, totally over. We are quickly moving back towards a freer market in energy. Three-mile Island is supposed to be back on-line generating power in 2028 - - if litigation doesn’t hamper its re-start. If we can conquer our unreasonable and unfounded fears about environmental catastrophe lurking behind every environmental problem and concern, we can again take our place as the most productive country on earth.
America, though many know it not, is one of the great underdeveloped countries of the world; what it reaches for exceeds by far what it has grasped… …But we can all remind ourselves that the richness of this country was not born in the resources of the earth, though they be plentiful, but in the men that took its measure. For that reminder is everywhere—in the cities, towns, farms, roads, factories, homes, hospitals, schools that spread everywhere over that wilderness.
We can remind ourselves that for all our social discord we yet remain the longest enduring society of free men governing themselves without benefit of kings or dictators. Being so, we are the marvel and the mystery of the world, for that enduring liberty is no less a blessing than the abundance of the earth.
Vermont Connecticut Royster, WSJ editorial page editor, 1958 - 1971
To develop an internally integrated economy is a noble ideal. But how to achieve it within a globalised trade system is another matter.