“I don’t mind trade wars when we’re losing $58 billion a year”, was Trump’s retort during a debate on Feb 25th of this year. At least he admits raising tariffs WOULD start a trade war. But what exactly does that mean for the average American? What is a tariff? What other issues could come from this economic policy?
Luckily for us, we have answers. Not only do we have the answers but we have empirical evidence and countless studies to take these questions from long-standing debates between economists to real life examples of the effects of these decisions.
First off let’s find out what exactly a tariff is. According to the Oxford Dictionary, a tariff is a tax or duty to be paid on a particular class of imports or exports. So in layman’s terms, it is a tax specifically aimed at imports or exports. Tariffs in America go back to the founding of our country. In fact Tariffs were the first source of revenue for our newly formed federal government. Usually when tariffs are spoken of today in America they are aimed at certain imports while at the same time subsidizing that industry within America’s borders. So if Canada is shipping a certain type of lumber to America for less cost than the American lumber industry can sell it for then the government will tax those Canadian companies while at the same time giving money to the local American companies. Some people like the idea of “protecting” American jobs but all this does is lower incentive for the American companies to become better and more competitive while at the same time raising the cost of those goods to the American public at large.
With 2016 coming to a close, it is still a debate whether we are still recovering or have fully recovered from the 08 Recession. Either way, the effects of tariffs on our country’s economy should be front and center when discussing whether Protectionism is the right policy to pursue. Many proponents of tariffs claim that the policy saves American jobs but they never want to discuss at what costs those jobs are saved. In 2003 CITAC (The Consuming Industries Trade Coalition) did a study on the steel tariffs imposed by Bush in 2002 to find out if the act did,in fact, save jobs as originally promoted. The results of the study showed that approximately 200,000 non steel related jobs were lost as a direct result of the tariffs. Other American industries that relied on steel were forced to pay higher prices for steel which resulted in higher jobs losses than the total number of jobs in the entire steel industry. This means the American steel sector of our economy could have completely gone away and we would have sustained less job losses than what we lost “protecting” those jobs.
The issues of tariffs is not a partisan one either. Obama imposed tariffs on Chinese tire manufacturers in 2009. China had long been the dominating force for low-end tires bought in America. American tire companies countered this with going almost exclusively to high-end, premium tires, which they now dominate market wise. Yet when these Tariffs were introduced, national production of low-end tires did not increase while imports of low-end tires did increase. Instead of buying from China, companies started importing from S. Korea, Canada, Japan, Mexico, Indonesia, Thailand, and Taiwan. So while Obama claimed to save 1200 American jobs, it’s hard to look at these facts and understand how he came to that conclusion. Obama got this number from a Peterson Institute study and while the study showed that the tariffs did, in fact, save 1200 jobs Obama failed to mention that the study also showed that over 2500 jobs in other industries were lost to save those 1200. Industry leaders offer a clearer insight on the affect of the tariff. “The tariffs didn’t have any material impact on our North American business”, is what we are told by Keith Price, a spokesman for Goodyear Tire and Rubber Co. He continued, “The stuff coming in from China is primarily low-end. We got out of that market years ago.” John Frisbie, U.S. China Business Council President, said, “We disagree that the tariffs on imports of low-end Chinese tires have had any positive effect on American jobs or the American economy. All evidence suggests that the beneficiaries have been other low-end tire producers in Asia and Mexico.”
Affects to other industries, such as the American chicken industry, have not been studied as far as I can find. You may be asking yourself what chicken exports from America could have to do with tire imports from China. It’s very simple. One of America’s biggest exporters to China is the American chicken industry. As a response to Obama, China enforced a tariff on the American chicken imports to their country. Once one country takes a jab at another, then the other country feels a need to respond. This could potentially turn into a Hatfield and McCoy situation only instead of two families duking it out we have two super powers going back and forth. When this happens it is called a trade war. For a comprehensive look at tarrifs in America’s history and it’s relation to real wars click here.
It’s hard to understand with this amount of evidence why anybody would ever pursue such policies but when you step back it’s actually quite easy to understand. Obama telling America that he saved 1200 jobs or Trump campaigning to bring jobs back to America are incredibly effective tools to rally up your base. At the same time the unions or industries benefiting from tariffs have money to spend on getting their point across and also lobbying policies while the free trade side doesn’t have any motive other than it being the best choice for our economy. Wanting what’s best for our economy is admirable but it doesn’t pay bills in and of itself and so there aren’t free trade lobbyists or commercials explaining to the public why this issue is such an important one. Instead free trade advocates simply write blogs and hope enough of America reads them to understand the real consequences of this terrible, over and again tried, failed policy.