Tariff Nation

Explaining to your fifth grader why tariffs hurt everyone

A Case of Measles?

The US Constitution does not allow tariffs between the individual American states, so you don’t have to worry about President Trump imposing duties along the Mississippi River or along the Mason-Dixon Line.

But suppose that it did—right from 1789. And suppose that a trade war had erupted. Perhaps Virginia started it with a tax on iron from Pennsylvania, and the Keystone State retaliated with a duty on tobacco.

Then a state in the Deep South hoping to develop its manufacturing put a tariff on machine tools from Massachusetts. The Bay State hits back with a tariff on cotton. New Jersey says thanks but no thanks to furs “imported” from the Ohio Valley.

Over time, the effect would have been ruinous. Railroads having to unload freight at the state line. Factories limited to the output that their own states could absorb. No corn in Arizona, no woolens in Louisiana, no cotton (even after the abolition of slavery) sent north, thus no great mill towns in New England.

To carry this thought experiment further, suppose that each state had erected prohibitive tariffs on goods from every other state—so that each state would have been, theoretically, completely independent, as President Trump apparently aspires for the United States today.

Would American history and the country’s economic development have looked much different? Actually, yes. Over time, each of the American states would have been immeasurably poorer than they became, and the country as whole far less powerful, possibly not a world power at all.

It might not have seemed so in the early years of the Republic, because manufacturing took place in small shops and transportation consisted of horse-drawn vehicles and river barges.

There was no such thing as a national economy. Each state had its own money and even its own interest rates.

But over the next two centuries trade among the states soared. The economy was increasingly integrated—cotton from the South was refined in northern mills and automobile factories in Detroit “imported” steel from Pittsburgh.

A national economy did develop, and the result was unparalleled prosperity. You can’t imagine that growth without free trade among the states. Today, we scarcely think of it. But without interstate trade, the factory in Philadelphia that processed Kansas wheat could not have invented the Ritz cracker.

And had tariffs stifled intrastate trade, forcing Henry Ford to develop his own steel (and his own steel technology), the car he built would have been far more expensive.

And had Ford been limited to selling cars within Michigan, he wouldn’t have had the scale to develop the assembly line. And many other labor-saving devices and processes would not have been invented for the same reason.

Sears, Roebuck, the catalog merchant, developed a warehouse with, as it boasted in 1905, “miles of railroad tracks, mechanical conveyors, endless chains, moving sidewalks, pneumatic tubes and every known mechanical appliance for reducing labor” because the warehouse would serve a national market. Had Sears been limited to Illinois, investment on such scale would not have been worthwhile.

Trade provided America with the benefits of two related concepts, economy of scale and specialization. Some areas developed specialties for geographic reasons, such as in agriculture and mining, and some because they developed clusters of expertise, such as meat processing in Chicago and software in Silicon Valley.

This is immensely more efficient than for every state to try to succeed in everything, just as families who try to make all of their food, clothing and other goods are indulging in “subsistence living”—they subsist, but not much more.

Trade makes societies richer. (There are other benefits, including that commerce fosters interdependence and familiarity—peace as well as prosperity—but for now, let’s leave that aside).

Had America been a country of “Pennsylvania First” and “Virginia First,” it—neither the whole nor its parts--could have prospered as it did.

Today, nations are like the states were then—components in the world economy and increasingly integrated. According to the Wall Street Journal, a car made in North America makes six trips across Mexican, American and Canadian borders, where factories in each country with particular subspecialties contribute distinct processes or parts.

President Trump’s new tariffs threaten to torpedo these complex networks—which resulted from his own trade agreement, signed in 2020. They will have the sure effect of prompting retaliatory tariffs. Canada has already struck. China and (if Trump follows through on other promised tariffs) Europe will not be far behind. To permanently roll back trade would be no less damaging to the economy of the world—and to that of its component nations, including the U.S.—than in the fantasy of “Pennsylvania First.”

The principle of free trade was explained by David Ricardo, whose 1817 economics treatise demonstrated that each nation benefits from trade, even if they are more efficient than their trading partners, by specializing in the industry where their comparative advantage is greatest.

Greg Mankiw, the Harvard economist, simplified Ricardo with a homely but vivid metaphor. A star athlete—today, perhaps, Patrick Mahomes—may be able to shovel his walk faster than the boy next door. Nonetheless, Mahomes should hire the kid to shovel, because Mahomes has a greater comparative advantage playing quarterback. His resources should be expended there.

During Trump 1.0, America emphasized industries in which we were at a disadvantage. Tariffs protected American-made washing machines, which were costlier than imports.

And retaliatory tariffs punished American agriculture, resulting in more than $20 billion in welfare checks to soybean and other farmers. We made more of what we are bad at, and less of what we are good at. Make sense?

Albert Einstein called nationalism an infantile disease—“the measles of mankind.” Tariff wars are the measles of international economics—juvenile, contagious and inherently self-defeating.

Perhaps you can use this to explain the potential harm to the fifth grader in your family or town. Then, maybe write a letter; send it to the fifth grader in the White House.