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Tariffs, Trade, and Trump

Tariffs, Trade, and Trump

By Tyler Bauer

For centuries, international trade has been an important subtopic within politics and economics. This is no different today, although attitudes on international trade seem to have drastically changed over the past few years. What used to be a consensus on the merits of free trade has given way to a growing number of Americans who instead prefer protectionism.

Why Protectionism?

It is no coincidence that the widespread change in attitudes on international trade coincides with President Trump’s candidacy and subsequent time in office. His belligerence towards international trade and affinity for tariffs – or the threat of tariffs – has given a voice to Americans who oppose free trade. However, Trump is not the cause of this change – he is an effect.

The increased popularity of protectionism is one of many aspects of resistance to globalization. Protectionism is arguably most popular in the Rust Belt, an area of the country spanning from Wisconsin to the East Coast. The Rust Belt, like the rest of the country, has seen a decrease in manufacturing jobs, but the Rust Belt has lost manufacturing jobs at a far greater extent than most other regions. In 2016, Rust Belt voters – specifically those working blue-collar jobs, such as those in manufacturing – clearly favored Trump, believing he could bring their jobs back through protectionism. Support for protectionism has grown in the Rust Belt since the Great Recession, but there was never a legitimate presidential candidate willing to openly embrace protectionism – until Trump. President Trump was able to relate to Rust Belt voters and address their concerns throughout his campaign, making Trump’s election victory possible.

The Effects of Protectionism

Protectionism can be done in two ways – protectionism by tariffs or protectionism by subsidies. Although there are subsidies under the Trump administration, President Trump clearly prefers to use the former rather than the latter. Put simply, tariffs make foreign goods more expensive in an attempt to make domestic goods competitive by equalizing prices. Theoretically, consumers are expected to change their buying habits and buy a domestic good when prices are competitive.

Tariffs seem effective in theory. They also make us feel good. Tariffs appeal to our emotions by allowing us to feel as though we are helping American workers and companies. And to a certain extent, this feeling is true – tariffs do benefit some workers and companies. For example, Trump’s tariffs on solar panels and washing machines help American workers and companies in those specific industries.

Unfortunately, there is more to tariffs than meets the eye. Those directly affected by the tariffs – such as producers of solar panels – benefit. Indirectly, however, everyone else suffers. Consumers are forced to pay higher-than-usual prices to get the same product. In this way, tariffs are effectively an additional tax on goods. The workers and companies which benefit, on the other hand, are also harmed by being allowed to become complacent due to the safety net of the government’s support. Furthermore, tariffs lead to an inefficient distribution of resources, hurting the broader economy. The country as a whole would benefit if workers in a protected industry were to either adapt and improve or find a new job. While this is no doubt uncomfortable for the worker, society will benefit, and the worker can benefit from finding a job in which he or she plays a meaningful role in the economy. (I highly recommend Frédéric Bastiat’s “That Which is Seen, and That Which is Not Seen” for more on the direct and indirect consequences of economic actions.)

While tariffs on final goods are bad enough, tariffs on intermediate goods are much worse. Tariffs on final goods have the effect of inherently limiting the cost of tariffs to certain goods. Tariffs on intermediate goods, on the other hand, affect the prices of many other intermediate and final goods. The wide-reaching effects of tariffs on intermediate goods are what make Trump’s steel and aluminum tariffs so detrimental to the economy. Essentially, any product that contains imported steel or aluminum will become more expensive. When you consider how much steel and aluminum we use in our everyday lives, the potential effect of these tariffs becomes increasingly clear.

On the whole, economists believe tariffs on steel and aluminum will not benefit Americans, and neither domestic nor foreign politicians see these tariffs as being beneficial. Domestic politicians see these tariffs as a burdensome tax, and foreign politicians see these tariffs as harming businesses and consumers worldwide. Of course, domestic steel and aluminum producers will benefit from these tariffs; however, every other industry that uses steel or aluminum in any way will be adversely affected. To put this into perspective, steel-using industries outnumber steel-producing industries by a ratio of 80:1. Clearly, more will be hurt than helped by steel tariffs.

At the moment, the final effect of these tariffs is unclear. It remains entirely possible that Trump’s implementation of tariffs as part of a trade war could be used as leverage to lead to freer trade in the future. However, until that happens, these tariffs have proven to be detrimental. As it stands, only steel and aluminum producers have benefitted from tariffs, while everyone else has suffered. For example, Harley-Davidson – one of America’s most iconic companies – has been forced by retaliatory tariffs to move some of their operations overseas to cut down on costs. Similarly, Mid Continent Nail Corp – the nation’s largest producer of nails, producing half of American-made nails – has lost about half of its business and has been forced to terminate over ten percent of their workforce due to the tariffs on steel and aluminum. If the tariffs remain unchanged, Mid Continent Nail Corp believes it will be forced out of business by the end of the year. Sadly, there will likely be many other companies following Mid Continent Nail Corp’s path.

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