Until the late 19th century, states raised most of their government revenues from import tariffs. Could the practice
work today? A side effect of taxes is that they discourage the economic activity that they are assessed on. Tariffs are
taxes on imports and no different: they shrink trade. We allow tariff revenues to change an economy’s savings and
therefore the trade balance, as the U.S. administration intends. Then the displacement effect of import tariffs is so
strong that tariff revenues cannot plausibly fund more than a few days of annual U.S. government spending.
