- To tariff or not to tariff?

This week on "Firing Line."

- Over the last 20 or 30 years, we felt like it's okay for countries to take advantage of us, and that's just not gonna continue under President Trump.

- [Hoover] Since returning to the White House, President Trump has imposed tariffs on America's adversaries and allies alike.

- We need a new economic policy in this country insulating us from foreign countries that pay very low wages, foreign countries that cheat on all the trade rules.

And that's the primary goal of these tariffs.

- [Hoover] Jeff Ferry, chief economist emeritus at the Coalition for a Prosperous America, says Trump's tariffs will make America richer.

- This plan that Jeff wants us to embrace is simply taxing everything you consume and then giving you some money back on the side and pretending that we're gonna have prosperity and economic growth with that kind of redistribution.

It doesn't make a lot of actual economic sense.

- [Hoover] Scott Lincicome, a veteran trade attorney and president at the Cato Institute, says the costs will ultimately fall on U.S. businesses and consumers.

We brought these two trade experts together before an audience of students at Hofstra University to debate the potential benefits and the potential risks of Trump's tariffs.

- [Narrator] "Firing Line with Margaret Hoover" is made possible in part by Robert Granieri, Vanessa and Henry Cornell, The Fairweather Foundation, Peter and Mary Kalikow, Cliff and Laurel Asness, The Meadowlark Foundation, and by the following.

Corporate funding is provided by Stephens Inc. - Scott Lincicome, Jeff Ferry, thank you for joining me here at Hofstra University for this episode of "Firing Line."

- Great to be here.

- Thank you.

- You all are on different sides of this question.

I wanna start by taking a look at how President Trump describes tariffs, which are at the center of his trade policy.

Take a look.

- The word tariff is the most beautiful word in the dictionary, remember that.

It's gonna make our country rich.

They cost Americans nothing.

They made a great economy for us.

Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.

- Jeff, why are tariffs going to make the American economy more successful?

- Look, Margaret, the economy in the United States has been in difficulties for many decades.

We need a new economic policy in this country.

And part of that new economic policy is insulating us from foreign countries that pay very low wages, foreign countries that cheat on all the trade rules.

The postwar consensus of 1945 is history now.

We need a new economic regime.

And I think Donald Trump recognizes that.

He's a businessman.

He understands that the way an economy does well is to bolster its domestic manufacturing industries.

And that's the primary goal of these tariffs.

- All right, I know you disagree.

How do tariffs work then, Scott?

- Right, well, tariffs are a tax.

And somebody has to pay the tax.

And tariffs are typically paid by consumers, whether that is companies or individuals in the United States.

And when you spend that money in that way, that's gonna increase the price of the goods that are subject to the tariffs, not just the imported goods, but the domestic ones, as well.

If you do that, you not only mean fewer dollars for spending on other goods, but because about half of everything we import are things used by American manufacturers, tariffs on imports can actually harm manufacturing, lowering output in those sectors and reducing growth overall.

- President Trump says that foreign countries pay the tariffs.

So, why do you call it a tax?

- Well, because in most cases, it is actually the American consumer, companies or individuals, paying it.

We have had tariffs in place since President Trump was in office the first time around.

The vast majority of studies showed that Americans paid about 95% of that tariff cost.

- Jeff, do you agree that Americans end up paying that tariff cost?

- That's nonsense, complete and utter nonsense.

It's nonsense to say that American consumers pay 95% of the tariffs.

Authoritative study shows that price-- - But do they pay some of the tariffs?

- Yes, the cost of the tariff is is shared between the foreign exporter, the American importer, and the American consumer.

- Okay.

- When Trump levied tariffs in 2018 and 2019, consumer price inflation actually fell.

It didn't rise.

I had economists, beginning in 2018, tell me the consumer is gonna pay all of the tariffs, to which I would say, well, the tariffs on China are 25%.

Have you noticed anything that has risen in price by 25%?

And there was never a single answer-- - But you concede that the consumer does pay more.

- Look, the important point is-- - Do you concede or not concede that the consumer does pay more?

- The consumer pays some of the cost of tariffs, yes.

- Okay, which is what he's calling a tax, right?

- Yes.

- And Margaret, let's be clear-- - Wait, hold on, let him finish, but go ahead.

And then I want you-- - As long as the government is spending $7 trillion a year in the last Biden budget, and I hope that will come down to below six in the coming year...

But as long as the government is spending that money, we have to tax somebody to pay those bills.

The important point-- - You have to tax somebody, meaning the consumer, to pay for it.

And that's the cost which is the acceptable cost.

- Americans or foreigners.

- Or both.

- You know, you talk about- you talk about consumers, okay?

We're in a room here with college students.

These kids are gonna grow up and they're gonna be two things.

They're gonna be producers and working to earn money and they're gonna be consumers.

Every consumer is a producer with a few exceptions, and every producer is a consumer.

The way countries get rich is by choosing the right industries to work in, working hard, and seeing their incomes grow.

That's what we economists call a "growth in productivity."

The productivity-enhancing industries in America, and all over the world, tend to be manufacturing.

What the trade regime we've had since globalization around 1990 has been one where we've invited the Chinese, the Japanese, the Germans and others to exploit us, just as President Trump said, to let their countries get rich at our expense.

We have moved from a country that was known around the world for making the best automobiles in 1945 to a country today that specializes in fast food, big-box retail, health care workers, social workers and so on.

All those jobs are essential, but they're all low-wage jobs.

I want to move this country back to high-wage, high-income, high-productivity, high-growth industries.

- Okay, that is also manufacturing?

- Manufacturing is a key part.

So is software.

There are other things, too.

- Scott, you wanted to jump in.

You wanted to take a point.

- Well, I mean, Jeff's being a bit slippery when he talks about consumers and inflation, because I didn't say, I didn't say the end consumer.

I said companies, as well.

Tariffs are paid, can be paid, by American companies that choose not to pass those costs on to consumers.

But Americans are still paying those.

It's just like a corporate tax.

So instead of hiring as many workers, or investing in new equipment, or paying to their shareholders, companies are simply eating that tax and growing less because of it.

That doesn't change the fact, though, that Americans are paying the tariffs.

As for the fact that manufacturing and the US economy, the United States remains the second largest manufacturing nation in the world, where our American workers make more per hour than basically every country on the planet.

We make more than Germany and Japan and India combined.

The idea that the United States cannot have a thriving services sector, including investment in A.I.

and medical research and all these great things, and have a good growing manufacturing sector is just simply not true.

You can do both.

And quite frankly, at the moment, I wouldn't trade places with Germany, Japan or China for any amount of money, given where the U.S. economy is today compared to those economies.

- Okay, President Trump has recently announced a new 25% tariff on steel and aluminum imports.

Jeff, you have argued that Trump's first-term steel and aluminum tariffs boosted domestic production.

- Absolutely.

- But others, including the U.S. International Trade Commission, the Federal Reserve, have found that other industries that use steel and aluminum faced higher prices and decreased production as a result.

What are the trade-offs?

- Okay, first, we have to... Economics is about numbers.

We have to look at the actual numbers.

According to the International Trade Commission report published in 2023, the 25% steel tariff led to the prices paid in America by steel buyers to rise by 2.4 percent.

2.4 percent.

So steel prices went up very slightly, agreed.

On the other hand, the five major steel companies in America have opened, since 2018, approximately 15 new steel mills.

Each of these steel mills employs between 200 and 500 people, except for the one in Texas, which employs 2,000 people.

According to SEC filings, the average steel worker in America working for these big five companies earns $100,000 a year.

This is a great income for a man or woman without a college degree.

And this is exactly why you're right to say there's a trade-off.

In economics, there's always a trade-off.

Yes, steel prices went up by 2.5%.

It might even be more, a little bit more.

But we created thousands of jobs in regions that needed those jobs, we encouraged the steel companies to invest in new high-tech steel production.

And so overall, it was a big win, because remember what I said: every consumer is a producer.

That, as a producer, you need to be in a good job and in a job with growth prospects.

- Why, Scott, is that not a price worth paying?

- Well, because the same study, the International Trade Commission study, found that output at steel-consuming industries went down.

And thus we had a net economic loss of more than $600 billion every year.

So you can boost some steel employment.

But because steel-consuming industries outnumber steel industries in terms of workers by 70 to 1, aluminum-consuming industries outnumber aluminum-producing industries by more than 100 to 1 in terms of employees, then you're simply taxing those larger groups to satisfy smaller companies, to protect smaller companies, and thus actually making the economy worse off overall.

And that doesn't even get into the bigger macro effects.

When you protect companies from competition, you get less innovation, you get less dynamism.

When you have other foreign countries retaliate against your tariffs, like China and Europe and others did, you have loss there, too.

So you can boost some production employment.

But again, it comes at a much greater loss.

- Jeff, I'd like you to take the point that Scott made earlier, which is that, while you make the case that manufacturing grew, that there was this negative effect in another part of the economy.

How do you account for that rebuttal?

- How do I account for the claim that downstream industries suffered as a result of the steel tariffs?

- That there was a larger cost to the economy, even though there was a boost in a segment of the economy from the tariffs.

- Margaret, it's complete and utter nonsense.

- It's utter nonsense that there was a downside to tariffs at all?

- No, no, no, it's utter nonsense that downstream industries suffered.

2019 was actually a very good year.

- But Scott was arguing that the economy as a whole, there was impact in other areas of the economy that didn't impact steel and aluminum.

- But the GDP did very well in 2018 and 2019.

- How do you-- - This is a classic causation versus correlation problem.

What Jeff's trying to do is say, "Well, just because the economy expanded, "the tariffs didn't have any harm."

What economists actually say, what the Federal Reserve has said, what the United States International Trade Commission has said, and others, is that the United States economy is just a little smaller than what it would have been in the absence of the tariffs.

So, yes, you can still have a growing economy with tariffs.

You're just not growing as quickly, as well, as you would be without them.

- All right, we're gonna take a question from a student.

- [Ferry] Good idea.

- [Hoover] Jasmine.

- Hi, thank you for having me.

My question for you guys is: what are other approaches that the US could take to address trade imbalances without going to tariffs?

- Is there another way besides tariffs to change the trade deficit, Jeff?

- There are other ways.

A smaller federal budget deficit would help reduce the pressure to import.

Another alternative solution is to negotiate with other countries.

The fact is that in a world, in a fair-traded world, most countries would be close to trade balance, that you wouldn't have massive deficits as we have here, and trillion dollar surpluses as they have in China.

If all countries were to agree, "Hey, we need policies to converge on zero," except for those very underdeveloped countries that need inward capital movements, that could be a potential solution, too.

So there are plenty of alternatives.

President Trump favors tariffs, and the reason he does is because he's a man of action, and that's something he can do himself, personally, unilaterally.

- Scott, you wrote a piece in "The Atlantic" last October and it argued that one of the biggest costs to the US economy is the uncertainty that the president implementing unilateral tariffs can cause to the economy.

- Yeah, you know, there is a reason why Congress, which has constitutional authority over trade and tariff policy, delegated so much of it to the executive branch over the last 70+ years.

And it's called the Smoot-Hawley Tariff Act of 1930.

- You're speaking to a descendant of Herbert Hoover.

- There you go.

So you know the economic damage that-- - I don't know, Milton Friedman quibbles with how much it actually impacted the government, but-- - I think we can say that it plus the retaliation that it engendered contributed to the Great Depression.

It didn't cause it.

- Thank you.

- You're welcome.

But since Smoot-Hawley, Congress has delegated this chair of power to the president, and this made some sense.

But we've gone way, way too far because now the president can, with the stroke of a pen, impose tariffs across the board on our closest military ally in imports from Canada.

That doesn't make a lot of sense.

And it's really bad for the investment climate.

And if you pick up "The Wall Street Journal" today, not a day goes by that there's not some story about investors holding back investment because of tariff-related uncertainty.

And that just, again, makes common sense.

This is a lot of money people are putting on the line.

They need to know they have some certainty in this regard.

- I have a question from a student.

Alex, go ahead.

- My question for you is: how consequential do you think these escalating trade war tensions are going to be on our international relationships moving forward, especially as both China and the U.S. engage in this back-and-forth trade war tariff battle right now?

- The United States has a lot of goodwill, and that will continue to be the case with a lot of our closest allies.

But for a lot of other countries, there is a choice about whom to do business with.

And as the United States slaps tariffs on products and rips up our trade agreements, that actually pushes a lot of countries in Latin America and Africa and Asia towards China.

They do business more with China.

So in those ways, those countries that are begging for more solidified access to the U.S. market, more solidified trading relationship, they end up turning their backs on the United States.

And that can harm our foreign policy, not just our economic policy.

- How would you take that, Jeff?

- Allies and alliances are very important, but you don't build alliances by sacrificing your domestic economy.

All those allies will understand if we say, "Look, we've got a huge trade deficit "and we are losing hundreds of thousands of jobs "as a result of that.

"We have to take some action."

- There's a lot of economic apocalyptic rhetoric coming from Jeff, and it's kind of surprising given that the United States economy in the last 30 years has gained about 30+ million jobs.

Median wages for blue-collar workers are up about 40%, adjusted for inflation.

Industrial capacity is at an all-time high.

Median wealth is at an all-time high.

The United States has real problems, but the idea that this is some burnt-out economic wasteland, it just defies reality.

And I think it's important for us to think about that fundamental truth when we talk about tearing up alliances and slapping taxes on avocados or steel.

That reality matters a lot, too.

- I wanna, sort of, go back to a point that we began to build out.

President Trump has at times suggested that tariffs could pay for extending tax cuts.

They could pay off the national debt.

The Congressional Budget Office has estimated that Trump's proposal to impose a 10% tariff on all imports and a 60% tariff levy on China would bring $2.7 trillion in in 10 years.

That is less than 1% of the current gross domestic product.

Scott, tariffs were a major source of federal revenue in the 1800s.

Why do you not believe they could be now?

- Well, they have a big math problem.

The fact is that you need to raise, to replace the income tax, you'd need to raise about $2.2 trillion.

That means you'd need a tariff on, of about 50 to 60%, on the $3 trillion goods we import.

The problem is when you actually apply those tariffs, imports go down.

So you actually have a shrinking tax base when you apply tariffs that high.

That means you need tariffs even higher than that.

And you simply can't make the math work.

Meanwhile, you're getting lower economic growth, you're getting malinvestment.

You're getting all the bad things that tariffs do.

That's why tax experts tend to want a very broad base.

They don't want a narrow base like goods imports, and they want fewer distortions.

They want fewer carve outs and exemptions and less evasion, all of those bad things that tariffs really encourage.

- How do you take that argument then, that if you if you levy tariffs so high, you will then dampen down the economy so much that it won't be able to produce the revenue that you seek to earn?

- I think everything Scott says is a recipe for "steady as she sinks."

This economy has become much more unequal than it was when I was the age of these kids in college in the 1970s.

The bottom two quintiles are doing very badly.

The average median income of a production worker hasn't budged since 1973.

That's 50 years ago.

Meanwhile, the top 20% and the top 1% are doing fantastically well.

The reason for that is that globalization was designed to do that.

It was designed to force American workers to compete with workers in Mexico and Chile and Japan and Thailand, and it succeeded.

Now, we've actually built a model which addresses the question you asked me, okay?

If you put a 10% tariff on all our $3 trillion worth of imports, you will generate $300 billion a year.

Scott's correct when he says that imports will decline.

But in fact, they will only decline by 10 to 20%.

So you'll still be generating, over a 10-year time span, close between 250 and $300 billion.

You can then use that money to give everybody who's earning less than $1 million a year a $1,200 cut in their income tax.

And those who don't pay income tax, you can send them a check for $1,200.

- When Jeff's talking about a 10% tariff, he's not talking about on steel.

He's talking about on everything: on your groceries, on your clothing, on your footwear, on your automobiles.

Everything you consume as a good would be either subject to a 10% tariff or would be protected from competition because it's made domestically and thus those prices are gonna go up, too.

There's no escaping the fact that this plan that Jeff wants us to embrace is simply taxing everything you consume and then giving you some money back on the side and pretending that we're gonna have prosperity and economic growth with that kind of redistribution.

It doesn't make a lot of actual economic sense.

- The value of tariffs is a deeply held principle of Donald Trump's.

In 1992, William F. Buckley, Jr. hosted a debate about free trade.

And I want you to listen to Buckley, who quotes Winston Churchill here, and his eloquent criticism of those who favor tariffs and other restrictions on trade.

Take a look.

"They watch the river flowing to the sea and they wonder how long it will be before the land is parched and drained of all its water.

They do not observe the fertilizing showers by which, in the marvelous economy of nature, the water is restored to the land."

The United States would grow stronger if we devoted ourselves to removing existing restraints on trade rather than adding to their number.

- In other words, Churchill and Buckley argue that free trade makes everyone richer.

The water does not just flow out of the land, it also flows back into the land.

Why has that not been America's experience?

- That's very poetic.

Bill Buckley, like Winston Churchill, and like Scott, seems to see tariffs and trade policy as a part of foreign relations.

And I admit there is a relevance there.

But the fact is that economies grow because their domestic industries grow.

As I keep saying, we're all producers, as well as consumers.

In the specific case of Great Britain, and Winston Churchill did not understand this, Great Britain became the world's top industrial power in the 1700s and the early 1800s by leading the world in the textile industry.

In the 1830s and 1840s, it went to free trade.

America had gone to protection 20 years before that.

By 1870, the US, a protected economy, surpassed Great Britain in every single economic measure.

- Haven't we learned, though, that we can't actually, especially in a modern global economy, we can't actually insulate our economy from the rest of the world?

- I think we absolutely must insulate our economy to an extent.

You're absolutely right, we must trade.

I'm not in favor of our imports going from 3 trillion to 0.

I'd like to see them go to perhaps 2 trillion.

But we must insulate, we must invest in growth industries, and we must invest and leverage the technology we have.

We invented virtually everything that's in the internet today out in Silicon Valley.

We need to manufacture all those goods here.

Why?

Because by manufacturing, we extend the benefits to millions more workers.

- Okay, Scott, I know you're dying to respond.

- There's a few things.

First, we have to remember that the dollars we send abroad for imports come back to the United States as purchases of our debt or as foreign investment, purchases of real estate.

And those things have economic benefits, as well.

Jeff likes to talk about some of the communities harmed by trade, but he should go to Greenville, South Carolina and see the BMW plant there, or West Point, Georgia and see the Kia plant there.

There are tremendous benefits from economic openness.

I don't know if we should have 4 trillion or 2 trillion or $3 trillion worth of imports.

What I do know is that open economies, free economies, grow faster, grow better.

They have better jobs, better wages than closed economies.

The type of closed economy, type of managed economy that Jeff wants, is really a recipe for poverty.

Whereas the economy, the open economy I want, has some manufacturing, has some services, has companies that invest abroad, has companies that invest here.

And we all end up a little bit better off while also having access to great things like avocados.

- All right.

Scott Lincicome, Jeff Ferry, for this spirited debate and for the contest of ideas, thank you for joining me here on "Firing Line" at Hofstra University.

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