Rethinking Tariffs: How They Can Benefit the U.S. Economy Without Hurting Consumers - Sobel Network Shipping Co., Inc.

Rethinking Tariffs: How They Can Benefit the U.S. Economy Without Hurting Consumers

With the guarantee of a second Trump administration, the topic of tariffs has reignited debates about their economic implications. While many fear that tariffs could harm the U.S. economy, Stephan Miran’s paper, A User’s Guide to Restructuring the Global Trading System, presents a contrary view: tariffs, when implemented effectively, can achieve key policy goals without causing inflation or market instability.

The Challenge of Tariff Implementation

Miran acknowledges that implementing tariffs successfully is no easy feat. The path is fraught with risks and requires precise execution. However, when applied strategically, tariffs can address critical economic issues stemming from the U.S. dollar’s overvaluation.

The Weight of a Strong Dollar

The U.S. dollar’s status as the world’s reserve currency has led to its persistent overvaluation. While this makes imports cheaper, it undermines domestic manufacturing, creating economic discontent in many communities. This discontent, Miran argues, contributed significantly to Donald Trump’s reelection.

The overvaluation issue could be resolved by discouraging the dollar’s use as the global reserve currency. However, Trump’s administration, like its predecessors, values the geopolitical advantages of reserve currency status. These include leveraging financial power in foreign policy, as evidenced by the crippling economic sanctions imposed on Iran.

How Tariffs Can Bridge the Gap

Tariffs, essentially taxes on imports, provide an alternative means to strengthen the U.S. economy without abandoning the dollar’s reserve status. Critics argue that tariffs are inflationary, but Miran points to the 2018–19 trade war with China as evidence to the contrary. During this period, the U.S. dollar appreciated against China’s yuan at nearly the same rate as the tariffs, neutralizing inflationary effects through what Miran calls “currency offset.”

In this scenario, tariffs balance trade deficits by increasing demand for U.S. goods. A stronger dollar resulting from tariffs enhances Americans’ purchasing power for imports, while weakening the target country’s currency.

Perfect vs. Partial Currency Offset

In theory, “perfect currency offset” would ensure tariffs have no impact on U.S. consumer prices. While perfect offset is rare, partial offset often mitigates inflationary pressures. Even in worst-case scenarios, inflation would be short-lived, with long-term benefits such as reshoring manufacturing to the U.S. or shifting production to tariff-exempt countries.

Tariffs as a Negotiation Tool

Historically, tariffs have served as a lever in trade negotiations. During Trump’s first term, tariffs on Chinese imports led to the “Phase One” trade agreement, which included commitments on currency manipulation and intellectual property theft. Although the agreement’s promises were derailed by the pandemic, Miran suggests stronger safeguards—such as placing foreign reserves in escrow—could ensure compliance in future deals.

A Broader Vision for Tariffs

Miran envisions a broader, strategic use of tariffs, where access to the U.S. market becomes a privilege rather than a right. Tariff rates could be adjusted based on a country’s alignment with U.S. interests, from trade practices to defense contributions. This approach could stimulate domestic manufacturing, bolster American economic interests, and enrich the Treasury.

In cases where countries choose to absorb the cost of tariffs, the resulting revenue becomes a form of taxation that doesn’t burden U.S. citizens. Either way, the U.S. benefits.

Conclusion: A Win-Win Proposition

Miran’s paper argues that tariffs, far from being a blunt instrument, can be a sophisticated tool for achieving economic and geopolitical objectives. By carefully balancing their application, the U.S. can maintain its global dominance while alleviating economic pressures on its citizens.

For a deeper dive into the mechanics and risks of tariff implementation, I encourage readers to explore Miran’s comprehensive analysis in full. The paper offers a clear and thoughtful perspective on an often misunderstood economic tool.