(Bloomberg) --
President Joe Biden’s departing trade chief called President-elect Donald Trump’s idea of using revenue from tariffs to replace income taxes “very, very dangerous,” saying it would hurt lower-earning workers.
Tariffs can help persuade companies to bring manufacturing in critical supply chains back to the US, Trade Representative Katherine Tai said in an interview. But she argued against using tariffs for budget purposes, as the US did in the Gilded Age of the late 19th century, which was known for its “robber baron” industrialists and their fortunes.
In that scenario, “people with less income are bearing a much larger burden of funding the government,” she said.
Trump has cast his promise to impose sweeping tariffs partly as a way to bring in more revenue. On Tuesday he said he would create an “External Revenue Service” to collect them.
The US relied upon tariffs for most government revenue from its founding until 1913, when the 16th amendment allowing for creation of the income tax was ratified. The duties now account for less than 2% of federal revenue.
Tai defended imposing tariffs for reasons of industrial policy, pushing back against the traditional economic orthodoxy that tariffs cause inflation. She said consumer price increases have been driven more by supply shocks –- like the shipping disruptions of 2022 –- than import taxes.
The Biden administration kept in place most of the tariffs that Trump imposed during a trade war with Beijing in his first term and also increased duties on electric vehicles and semiconductors.
In Tuesday’s interview in her office’s second-floor conference room, whose walls are adorned with photographs from some of the hundreds of meetings she’s had over the past four years, Tai said she’s proud of the contributions her agency made to “the project of re-imagining globalization.”
Tai, 50, the daughter of immigrants from Taiwan, a Harvard Law graduate and former congressional aide, connected her tenure to those of her Republican predecessor Robert Lighthizer and Trump’s choice to follow her, Jamieson Greer.
Tai said that the three of them share a recognition of distortions in global trade, and that she hopes the Trump administration will work with allies to address them.
“One thing that will be consistent throughout this time is a view that US trade policy has to evolve,” said Tai, who under Biden was criticized by some in Congress and business groups but was cheered by labor unions, for refraining from efforts to negotiate new free-trade agreements. “There is this tremendous opportunity to make trade policy more responsive to what’s actually happening in the US economy” and for “workers and our working class” and manufacturers, she said.
While Tai said she’s proud of the effort the US invested in relations with the European Union, she said she wished they could have accomplished more together in permanently resolving long-term trade disputes over aircraft, steel and aluminum trade.
The EU didn’t appreciate “the need for visionary transatlantic leadership that was required,” she said.
One of the top items on the agenda for Tai’s successor will be the review of the US-Mexico-Canada Agreement on trade negotiated mainly in 2017 and 2018. Tai said it presents an opportunity to update the accord to reflect priorities such as supply chain resilience that have emerged since the global pandemic.
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