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Monday, July 16, 2018

Backfire Economics: 6 Ways Tariffs Are Hurting the Very People They’re Supposed to Help

Support for Trump’s tariffs is not something generated by a sense of a greater good.

1. How Trump’s Policy Decisions Undermine the Industries He Pledged to Help (New York Times):

Even as the president’s pro-business stance is broadly embraced by the corporate community, in some significant cases the very industries that Mr. Trump has vowed to help say that his proposals will actually hurt them. They also warn that policies designed to aid one group will eat into someone else’s business in ways that policymakers should have anticipated.

“I would like to tell the president, ‘Man, you are messing up our market,’” said Kevin Scott, a soybean farmer in South Dakota and the secretary of the American Soybean Association. The idea of changing Nafta, he said, “gives us a lot of heartburn in farm country.”

At the same time, Mr. Scott said, China’s threat to impose tariffs this week on United States soybeans—in direct response to Mr. Trump’s tariffs on other Chinese-made products—is already having a negative effect on the prices farmers see. In recent days, Canada imposed its own retaliatory tariffs against the United States. And on Friday, General Motors warned that Mr. Trump’s threat of tariffs on imported cars could backfire, killing American jobs and leading to “a smaller G.M.”

2. U.S. Exporters Will Be a Surprise Loser From Tariff Fight (Wall Street Journal):

Though completely counter-intuitive, theory and evidence show that taxes on imports act just like a tax on exports. Though it’s early, the Trump administration’s recent round of tariffs is already rippling out to exporters: Soybean farmers face plunging prices as China raises tariffs, Harley-Davidson will move production of motorcycles destined for the European Union out of the U.S., and BMW says foreign retaliation may hit exports from its South Carolina plant.

Economists credit Abba Lerner, then a graduate student at the London School of Economics, for proving theoretically in 1936 that an import tariff was equivalent to a tax on exports. The Lerner Symmetry Theorem is considered a key principle of trade economics, like 18th-century economist David Ricardo’s theory of comparative advantage.

3. New Chinese Tariffs Mean Lower Prices For Wisconsin Farmers (Wisconsin Public Radio):

Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison, said it’s reminiscent of the “guns versus butter” model in economics. Normally, the concept is used to talk about the relationship between a country’s investment in defense versus civilian goods. But Stephenson said it feels relevant on the issue of tariffs. “Right now, agriculture in particular, and dairy for us especially is just getting the blow-back of these retaliatory tariffs on steel and aluminum,” Stephenson said.

Stephenson said the new tariffs have already caused Class III futures prices to decline by $2 per hundredweight or 100 pounds of milk. “Going into our fourth year of relatively low milk prices and now seeing the price that had been recovering stumble, and significantly stumble, it’s not a good thing,” Stephenson said. “So producers are not feeling good about that impact of tariffs.”

4. U.S. Soybeans Are A Prime Target For Chinese Tariffs (National Public Radio).

Minnesota soybean farmer Michael Petefish and president of the Minnesota Soybean Growers Association:

Since the announcement of retaliatory tariffs, the soybean market has dropped almost $2 per bushel. For my family farm, with the amount of soybeans we produce, that’s close to $250,000 in lost value.

5. Donald Trump’s Trade War Is Proving The Free Traders Right (The Federalist):

It seems almost embarrassing to have to rehearse the case for free markets and free trade, a case thoroughly established centuries ago by the likes of Adam Smith and especially Frederic Bastiat. But Donald Trump is determined to make us learn that case all over again, the hard way.

The key argument for free trade is that a tariff on imports may benefit one particular industry or group of producers, but it raises prices for everyone else, including other manufacturers who import the taxed material. You think the country is getting ahead because you see the increased profits for, say, domestic steel producers. The problem, as Bastiat famously pointed out, is what you don’t see—or at least, what Trump refuses to see—namely, all of the costs that tariffs impose on other companies and individuals.

Part of the reason President Trump’s unilateral trade war is becoming such a quagmire is that it is carried out with no apparent plan or strategy. It is not a negotiating ploy to push other countries into a trade deal with the United States, because Trump announced this war by withdrawing from trade deal negotiations. Instead, his targets seem random and capricious. As with his hairstyle and many of his other political views, Trump’s attitude toward trade and industry seems to have been cemented in 1978, so he’s laying down trade barriers around the industries that associated with American economic might back then, like steel and cars.

Yet he is finding that even the quintessential American firms of 1978 are connected to the world if vast webs of trade. Take one of the brands Trump has lauded, Harley-Davidson. These days, Harley sells a lot of motorcycles in Europe, so Trump’s trade war is causing them to move some production overseas to avoid European retaliatory tariffs. Rather than rethink the tariffs, Trump threatened the company and accused it of “surrender” in his trade war.

6. Trump Voters Stand by Their Man as He Wrecks Their Jobs (Reason):

All of which leaves the impression that support for Trump’s tariffs is not something generated by a sense of a greater good. It’s not about voters agreeing to take a hit now because they understand it is necessary for something beneficial down the road. It seems to be, mostly, about tribalism. About the fact that our guy is “better than the Muslim we had in the White House,” even if his policies cost my job.

At least that’s how it seems for now. Once more jobs are actually lost, and perhaps once it becomes clear that the tariffs aren’t accomplishing whatever goals Trump has, perhaps that will change. The partisan hatred might not go away, but maybe voters will stay home. Until then, parts of so-called Trump country seem to be fine with their man destroying their jobs to own the libs.

Reprinted from AEI

  • Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.