Tariffing the Cloud
A tax on foreign services is too crazy even for Trump
Despite Donald Trump’s latest tariffs blanketing nearly every good that dares to cross into the United States one sector has remain unmolested entirely: services.
Superficially this may seem odd as ultimately services are, like goods, are just the product of labour and capital, wrapped in a firm, and sold to willing buyers. So why haven’t they been taxed?
Well just imagine what a tariff on imported services might look like.
Every time an American books a holiday to Paris to ogle the Eiffel Tower or enrols in a British university, they’re importing services namely tourism and education. Under a Trumpian service tariff regime, that Fulbright scholar heading to Oxford would be slapped with an extra tax—not just on tuition, but on housing and the occasional Tesco meal deal. Want to see the Colosseum? That’ll be 10% more for the privilege of appreciating Roman concrete. Taxing US citizens for the termacity of travelling overseas would obviously be incredibly unpopular and rightly seen as a massive imposition of their freedom. It is ridiculously complicated, difficult to enforce, and would lead to a wide range of terrible outcomes for American travelers.
Digital services would fare no better. Apple music streams music from around the world into American ears which would need to be taxed somehow. If Australians podcasters beam content into Kansas (or sell slots to American advertisers) Uncle Sam would need to take a cut too. The logistical impossibilities quickly become apparent. It is easier to imagine a scenario where content providers merely block the US from foreign content, rather than deal with the difficulty of figuring out how to pay a 10% markup on it.
But the real absurdity arrives at cruising altitude. Consider a flight from New York to Los Angeles. As long as a US resident flies with a US carrier it is considered domestic consumption. But what if they fly with British Airways? Then it is considered to be “importing” transportation. If you aren’t a US resident then it doesn’t count either. A tariff on services would require different prices for US residents despite taking the same route at the same time.
Such logic—if it can be called that—reveals the lunacy at the heart of broad-based protectionism. Services, unlike widgets and washing machines, are often delivered instantly, digitally, or directly to the consumer. Applying border taxes to such transactions creates a bureaucratic minefield, distorts consumer choice and punishes US consumers in ways that are both obviously costly and manifestly illiberal. The absurdity of treating goods different based on the location of it’s production is more apparent with services but can be just as costly for goods.
Yes, goods are easier to slap with tariffs. Their physicality masks these inefficiencies. But trade barriers don’t become smarter just because they’re less visible.