Smuggling as a Natural Right to Evade Trump's Tariffs

THE NATURAL RIGHT TO FREE TRADE--AND TO SMUGGLING

I have argued that the desire for trade--or what Adam Smith called "the propensity to truck, barter, and exchange"--arose early in human evolution.  I have also argued that that evolved natural desire for trade supports a natural right to free trade, and therefore any despotic interference with free trade will provoke resistance from those who want to trade.  This led me to predict--about six weeks ago--that Trump's despotic tariffs would move people to evade those tariffs through smuggling.  Now there's a good article in the New York Times confirming that prediction.

When a good is imported into the U.S., the importer must report to the U.S. customs agency the identity of the good, its dollar value, and its country of origin.  The tariff charge on that good will depend upon those three factors.  So, for example, if the tariff rate for a plastic toy from China is 50%, and if the declared value of that toy is $10, then the tariff due is $5.

Consequently, there are at least four ways of evading this tariff.  The importer can avoid the tariff completely by sneaking the imported good into the U.S. without notifying the customs agents.  Or the importer can give the customs agents false information about the identity of the good, its declared value, or its country of origin that will result in a lower tariff than what the law requires.

Customs agents have the power to inspect shipping containers to see if importers are being dishonest in their reporting of what they are importing.  But since there are only 26,000 U.S. customs agents, and the number of containers entering the Port of Los Angeles per day is about 27,400, it is impossible for those agents to inspect more than a small proportion of those containers; and therefore smuggling by dishonest importers is easy.

One of the most common ways of dodging Trump's tariffs over the past few months has been what is called "transshipping."  For example, a U.S. importer pays a special fee to a Chinese shipping company that moves Chinese goods from China to Vietnam and then ships those goods to the U.S., so that the importer can identify the imported good as coming from Vietnam, which means a lower tariff than the tariff on Chinese goods.  This illustrates how despotically unfair tariffs create huge economic incentives for smuggling.

I call Trump's tariffs despotic because they arise from his personal whims in exercising his arbitrary absolute power without any deliberative process in Congress for deciding whether such tariffs are fair and reasonable.

"ENLIGHTENED STATESMEN WILL NOT ALWAYS BE AT THE HELM"

Writing at the Law & Liberty website, Erik Matson ("No Tariffs Without Representation," March 19, 2025) has surveyed the history of how Congress has delegated its constitutional power to levy tariffs to the President, and how Trump has twisted that power to serve his despotic dominance of global trade.

In the Declaration of Independence, the list of grievances against Great Britain included denunciation of the King and Parliament "for cutting off our trade with all parts of the world."  Later, in the Constitution, the Founders entrusted Congress with the power over international trade by giving Congress the power "to lay and collect taxes, duties, imposts and excises" and the power "to regulate commerce with foreign nations" (Article I, section 8, clauses 1 & 3).

The Founders feared, however, that this power over foreign trade would be used by factional groups to promote protectionist policies that would advance their selfish interests contrary to the public interest of the community.  In Federalist Number 10, James Madison warned: "Shall domestic manufactures be encouraged, and in what degree, by restrictions on foreign manufactures? are questions which would be differently decided by the landed and the manufacturing classes, and probably by neither with a sole regard to justice and the public good."  Madison thought: "It is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good.  Enlightened statesmen will not always be at the helm."  Donald Trump's presidency confirms this warning.

In 1930, the Congress enacted the protectionist Smoot-Hawley Tariff Act, which raised average U.S. tariffs to almost 60%.  Other countries around the world retaliated with high tariffs of their own.  As a result of this global trade war, worldwide commerce fell below its 1929 level over the next three years, which created the Great Depression.

Once the folly of the Smoot-Hawley Tariff became clear, the Congress in 1934 began to delegate its tariff powers to the Executive Branch with the Reciprocal Trade Agreements Act (RTAA), which allowed the president to reduce tariff rates by up to 50% as long as there were comparable reductions by other nations.  The RTAA had to be reauthorized by Congress every three years.  Allowing the president to bypass the Congress in reducing tariffs was seen as a way of escaping the problem of factionalism in trade policy, where lobbyists for particular interest groups demand protectionist tariffs from Congress that create harmful trade wars.

As Erik Matson has indicated, the RTAA and later trade legislation along with international trade agreements after World War II have allowed presidents who understood the wisdom of free trade to promote the liberalization of global trade.  But that ended in 2016 with the election of a president for whom "tariff" was a "beautiful word."

Trump has exploited the vague language in some of the international trade laws that allow the president to increase tariffs in response to "national security" threats (the Trade Expansion Act of 1962), cases of "unfair trade practice" (Trade Act of 1974), or "unusual and extraordinary" threats in an "emergency" (the International Emergency Economic Powers Act of 1977).  Trump's advisors have told him that he can impose an arbitrary protectionism based on his personal whims of the moment by pretending that this is justified by concerns for "national security" or "fair trade."

NO TARIFFS WITHOUT REPRESENTATION

Tariffs are taxes.  And so just as the American revolutionaries demanded "no taxation without representation," Americans today can demand "no tariffs without representation."  That's why the Constitution gives Congress--the body that is most representative of the people--the power to levy taxes and tariffs.

The problem is that Congress has gone too far in delegating its power over tariffs to the president.  There are legislative proposals in Congress now that would say that the president cannot raise tariffs without getting explicit congressional approval.

Unfortunately, as long as the Congress is controlled by Republicans who slavishly obey Trump, we cannot expect that the Congress will pass this kind of legislation.

Of course, we have seen that from day to day, if not from hour to hour, Trump changes his mind about his tariffs.  The Financial Times has called this his TACO trade policy--"Trump Always Chickens Out."   So we can hope that he finally decides that his tariffs are not beautiful but boring.

In the meantime, let's Make American Smuggling Great Again.