Trump's high tariffs would create an administrative nightmare while disrupting the US economy

Colleagues at the Peterson Institute for International Economics have already explained the impracticality of trying to fund the government with the 10 to 60 percent tariffs that former president Donald Trump has proposed. It is not possible to pay for all government expenditures with tariffs at the levels he has proposed or for that matter at any level. Tariff revenues would be far too small on any assumption, and government expenditures far too large. But there is another problem with the Trump tariffs: They require a very large federal licensing administration.

Imposing a high tariff can be accomplished with Trump's signature on a single sheet of paper, if he has the authority to do it. That much is simple. In the real world, a tariff has a direct and immediate effect, not just on the public as consumers but on businesses. This is illustrated by the issues caused by the steel and aluminum "national security" measures. The Bureau of Industry and Security (BIS) of the Department of Commerce published a notice in May updating the process of getting exclusions from these import restrictions. Roughly 27,000 exclusion requests were filed between March 2022 and the time of the notice. The BIS estimates that these came from "somewhere between 380 and 500 small businesses." From March 2018 through September 2021—the first 3½ years of the tariffs—the BIS had approved a total of about 207,000 exclusions, about 188,000 for steel products and about 20,000 for aluminum products, according to the General Accounting Office (GAO).

The magnitude of the burden of red tape that businesses and the government would bear with Trump tariffs would be far larger than that. Steel and aluminum imports covered by restrictions account for roughly 1 percent of the $3.1 trillion of total US imports annually. Extrapolating from the steel and aluminum example, expanding the BIS exclusion process to all imports under Trump tariffs would likely result in millions of requests for exemption, and that would be just from small businesses. To this number would be added requests from larger businesses.

Why would there be requests for exclusions? There are a lot of goods that the United States just does not have. Examples: The United States imports most of the critical minerals it needs; around 90 percent of active pharmaceutical ingredients (APIs), with closer to 95 percent for common over-the-counter medicines such as ibuprofen; and during the COVID-19 pandemic, it became plain that essential goods, such as mechanical ventilators, on which many lives depended, had as many as 600 parts sourced from all over the world. None of that could be changed overnight even if it were desirable to do so. There are a lot of products, such as bananas, that would be outlandishly expensive to grow in the United States in hothouses. What use would a tariff on bananas be?

While the 10/20/60 percent tariffs are a proposal Trump often mentions, he also proposes a more complicated version. This is the Trump reciprocal tariff. It would require an even larger federal bureaucracy. He described it in the following way: "For example, food items like cereals or other preparatory goods are tariffed at 32.9 percent by India, 19.5 percent by China, and only 3.1 percent by the U.S. India applies a tariff of 25.3 percent on transportation equipment, while the U.S. only tariffs those goods at 2.9 percent. ... If India, China, or any other country hits us with a 100 or 200 percent tariff on American-made goods, we will hit them with the same exact tariff. In other words, 100 percent is 100 percent. If they charge US, we charge THEM—an eye for an eye, a tariff for a tariff, same exact amount."

This proposal requires a different US tariff schedule for every country we trade with. Instead of having one US tariff schedule for all imports, there would be close to 200 US tariff schedules, each with thousands of entries. A T-shirt from Bangladesh would bear a different tariff than one from Honduras or Vietnam. Cheese from Switzerland would have a different rate of duty than cheese from Ireland, the United Kingdom, or New Zealand. Moreover, the line-item reciprocity approach would require constant adjustments as countries changed their tariffs for their own domestic reasons or to deal with the United States, by attempting to buy their way out of a trade war or by retaliating against American exports. Trump does not specify if a country would get any credit for having a lower tariff on an item than the United States has. If it did, that would add a layer of complexity but also uncertainty. For example, if a foreign country eliminated its tariffs on an item, would the United States match that action without giving domestic producers an opportunity to petition to preserve the US tariff? More red tape.

There are radical solutions to trade issues that do not require enlarging the federal bureaucracy. If a tariff is high enough, it can become prohibitive. Seventy-five years ago, trade with China was prohibited. The Office of Foreign Assets Control (OFAC) worked to make sure that China could not obtain any dollars. For anything US Customs seized, at least for the period I am familiar with having briefly served in that office, it only took three Treasury Department employees to handle the job of allowing or denying entry into the United States. When there was an appeal to let something into the country that even looked Chinese, OFAC would write a letter to the owner saying the import could be allowed in—if the owner could prove that the item came out of China before the communist takeover in October 1949. Since for most personal possessions this was impossible, requests for entry were rarely approved.

Short of a total embargo, which no one is proposing, it will become necessary under any of the Trump tariff proposals to create an army of federal employees administering import restrictions, when they could be more productively employed solving other problems. What is worse is that the high Trump tariffs would harm the nation's economy. If put into place, these tariffs would bring with them a loss of freedom of choice for individual Americans and dramatically increased costs for domestic businesses and consumers, with taxpayers footing the bill for this administrative nightmare. This dystopian vision would become all too real.