Balaji:

For most of American history, tariffs dominated taxes as a source of federal government revenue:

This was also the time when the US rose to become a manufacturing powerhouse. And as you can see from the graph, the income tax (and the Federal Reserve and much of the federal government as we know it) really only dates back to the 1910-1930s period. For most of US history the economy was set up in a completely different way.

MERCANTILISM VS FREE TRADE
The term for what the US used to be is “mercantilist”. The founders thought of the US as like a giant merchant that needed to make more money than it spent.

As such, their rationale for tariffs was simple. A tariff is an incentive to build rather than buy. In theory, it encourages domestic manufacturing and is a tax on foreigners rather than citizens. We don’t need to buy foreign goods; we have goods at home!

This is distinct from the last few decades of free trade. The idea was: you’re good at making apples and I’m good at making oranges, so why not just specialize and trade? Comparative advantage proves it’s a win/win!

This is a good argument until you make military robots and I make pieces of paper, which is the relationship between China and the US now. At that point it’s no longer a win/win. With your military robots you can perhaps take my paper — and my oranges. And there is no need to trade.

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“America’s assassination attempt on Huawei is backfiring”