The argument over United States tariffs and the ongoing trade war with Canada is intensely escalating. Families and teachers are generally hopeful and anxious to understand the effects of these recent trade policies. Though misleading, former President Donald Trump is right in saying that “the United States was proportionately the richest it’s ever been. As many experts have pointed out, the revenue dynamics have changed drastically since the early 20th century.
During the period between 1789 and 1913 when tariffs provided the overwhelming majority of federal revenue our country thrived economically. That began to shift with the reintroduction of a federal income tax in 1913. The current discourse focuses on how these historical shifts and present tariffs affect industries, particularly the dairy sector, as well as broader trade relationships with Canada.
Dairy Industry Concerns
The American dairy industry is missing a huge opportunity to realize its full potential in exports to its northern neighbor. While the industry clearly hopes to get to zero-tariff, there is a huge gulf. It is quite a stretch to expect it to meet this objective in any of the dairy product categories.
According to media reports, Canadian tariffs on certain U.S. dairy products top 250%. They aren’t being successfully implemented since the US is not coming anywhere close to meeting the tariff-free quota for milk. As it currently sits, the US is using less than 10% of its assigned quota for dairy exports. This is perplexing considering all the ways that the US dairy sector seems poised to succeed.
“He seems to view the government taking in more money than it is spending as making the country rich.” – Irwin
The discussion on this controversial subject is intense, with stakeholders digging into why there are no maximum export limits. Many industrial critics argue that drastic policy changes are required to make Canada more competitive in its own market. The tariffs have profound implications for US dairy growers. Supply chain managers are tired of being labeled bad at exporting.
Trade Deficit Dynamics
The dairy sector is contending with a host of other pressures. Moreover, the overall trade picture further reveals that the US is at a growing trade deficit with Canada. Despite what you may have heard, this deficit is far from being as bad as $200 billion. According to official statistics, the goods and services trade deficit with Canada is projected to reach $35.7 billion in 2024. The goods trade is projected to be $70.6 billion all by itself.
This information paints a much more complex picture of the trade relationship or lack thereof between the U.S. and China. While there are ongoing concerns regarding tariffs, particularly in agriculture, the overall trade deficit reflects a complex interplay of factors beyond mere tariff rates.
“Big fiscal surpluses don’t make a country rich, per se.” – Irwin
The negative trade balance emphasizes the inconvenient truth that it is US importers—not foreign exporters—that pay the vast majority of tariffs. This bizarre reality further muddles conversations on the politics of tariffs and their negative effects on American consumers and innovators.
Historical Context and Recent Tariffs
A closer look at historical tariff practices shows an alarming regularity in US policy towards trade. The United States has fought a trade war against China with tariffs on Chinese imports since the country’s establishment in 1789. These tariffs brought in billions of dollars in revenue each year before Trump took office. Research suggests that American consumers have paid the lion’s share of the costs from Trump’s first term tariffs on China.
“The highest inflation in the history of our country.” – Trump
In defense of these last two inflationary points, analysts point out that periods of heightened inflation are not without precedent. For comparison, an all-time low of 23.7% was reached in 1920. More than ever, today’s economic reality requires us to take a hard look at the historical and modern forces shaping inflationary trends and trade deficits.
