Trump plans to implement tariffs to stimulate the US economy

Economic gains should be achieved through merit, not through government favoritism.  

However, many governments in our trade partner countries are influenced by special interests and power brokers who misuse public funds for their own benefit at the expense of others.  

China frequently infringes on American patents and other intellectual property. Foreign nations often limit US companies’ entry into foreign markets or manipulate investments and jobs away from the United States through tariffs and subsidies. 

This is why former President Donald Trump and others have advocated for US tariffs as a potential solution. 

However, the use of tariffs requires careful consideration, as they can be both beneficial and harmful. 

When imposed recklessly and arbitrarily, tariffs can disadvantage American households by increasing the cost of consumer goods without generating employment opportunities.

On the other hand, strategic tariffs can help dismantle foreign monopolies and establish a fair global economic environment, leading to the creation of jobs within the country.

When utilized appropriately, the threat of a new tariff under a US president’s authority is a direct challenge to foreign special interests, aiming to disrupt their unlawful influence within their governments. 

The Trump administration successfully used tariff threats to discourage European initiatives for carbon and digital-services taxes on US industries.

His administration also employed similar tactics to open Asian markets to US exports. During the first three years of the Trump administration, prior to the COVID pandemic, US goods exports to Japan and South Korea increased by approximately 14% and 27% respectively. 

While the Trump administration effectively used tariffs to negotiate for better market access and other diplomatic and security objectives, the Biden administration has neglected this approach. 

It has left trade barriers intact, without pursuing the broader goals that Trump aimed to achieve through their issuance. 

President Biden’s inaction has resulted in higher trade barriers without any of the associated benefits.  

Tariffs and international tax policies can also be leveraged to address imbalances in the global tax system that have impeded US economic growth and disadvantaged American industries for years.  

Most developed countries tax domestic consumption, which means they primarily tax products consumed within their borders, regardless of whether they are domestically produced or imported. They usually do not tax products made domestically and exported abroad. 

In contrast, the American tax system primarily taxes production, not consumption.

This disparity results in a double taxation for American exports — once through US business taxes and again through foreign consumption taxes. 

This system impedes US industrial growth, puts American workers at a disadvantage, and imposes minimal taxes on imports into the United States. 

In essence, our tax system favors foreign production over American production and imposes a double tax on exported US products.

This situation discriminates against American workers and business owners.  

A border-adjustment tax, similar to a tariff-like tax, could rectify this issue by subjecting all imports to a consistent tax while exempting US exports from taxation. 

Implementing this solution would mitigate the imbalance and eliminate the long-standing penalty imposed on US domestic production. 

Additionally, it would generate substantial federal revenue, with a 10% adjustment estimated to bring in around $1 trillion over a decade. 

This revenue could be used to reduce other taxes significantly, enabling full and immediate deductions for business investments in research and development and physical capital such as factories. 

This approach outlines a methodical and beneficial tariff policy that can be utilized as a negotiating tool for fair trade agreements, eliminating existing penalties on domestic production, and using revenues to support tax cuts that promote economic growth. 

Adopting a tariff-like border-adjustment tax could be a potent tool for the next president to enhance the economy, empower American industries, and foster the prosperity of American families. 

Richard Stern is the director of the Grover M. Hermann Center for the Federal Budget at The Heritage Foundation. Andrew Hale is the Jay Van Andel Senior Policy Analyst in Trade Policy in Heritage’s Thomas A. Roe Institute for Economic Policy Studies.