Tariffs, they’re not just for econo-wonks anymore.
Used to be, someone at a party started talking about tariffs, it was time to check out the punch bowl or buffet table. You’d think, fine topic for academics, historians and think tanks, but really, not going to mean much in daily life.
Only now, tariff talk is high-profile, high-stakes and mainstream.
Credit: Mike Luckovich
Credit: Mike Luckovich
Both parties endorse some tariffs. President Joe Biden, in fact, extended most of those imposed when Donald Trump was president. But this time around, Trump has more aggressive proposals, making tariffs the linchpin of his economic pitch.
On the stump, Trump says tariffs as high as 100% in some cases on certain imported goods would create billions in new tax revenue for the U.S. and return manufacturing jobs to the U.S. by companies seeking to avoid the levies.
But the vast majority of economists say that’s not so. Those tariffs would mean much higher prices for American companies and consumers, experts say. The taxes paid would be passed along and then paid by the buyers of goods, not the overseas companies that make them.
It’s just one of the many subjects on which Republican Trump and his Democratic rival, Vice President Kamala Harris, hold diametrically opposed views, which is why The Atlanta Journal-Constitution put out a call for questions from readers to see what they want to know about. Sure enough, when readers wrote in with queries, tariffs and the economy were on a few minds.
It’s not a small question, since the U.S. is importing about $4 trillion in goods and services a year.
And it’s an issue on which the consensus expert view is that Trump is wrong.
Q. Trump keeps claiming that other nations will pay us billions in tariffs when he passes them in office. But aren’t tariffs paid by those who import goods from another country — not the exporters? So, wouldn’t the tariffs be paid by American individuals and companies who imports products from another country? So, exactly how would he make the exporters pay us for those tariffs? — Barbara
Yes, a tariff is effectively a sales tax, since it boosts the cost of the import. And yes again, like other sales taxes, it’s typically passed on to buyers — in this case, American consumers and companies.
Trump says, no. But even tariff supporters say, that’s the point. Make imported goods more expensive and American goods more price competitive.
Two Georgia companies, for example, have asked for a 100% tariff on imported golf carts, arguing imports are unfairly subsidized by the Chinese government. That request is still under review by the Biden administration.
Trump has varied his pitch a bit, but he’s been consistent about loving tariffs. He has recently called for tariffs of 20% or higher on every foreign import and has repeatedly proposed a 60% tariff on imports from China and a “100% tariff” on any nation that stops using the dollar as its trade currency.
Additionally, he’s talked about a 100% or 200% tariff on cars made in Mexico.
Harris, for her part, criticizes Trump’s proposals as “a national sales tax.” But she hasn’t said whether she would continue tariffs Biden had extended when he became president. Instead, she has proposed an array of help for some sectors and households, including the expansion of the Child Tax Credit, a tax credit for newborns, and one for first-time homebuyers. She also would end Trump’s 2017 tax cuts for higher-income Americans.
Unlike many other proposals, most tariffs can be ordered by the president without Congressional approval. The president signs an executive order and the government starts collecting the tariff from the importer — whether it’s steel, bananas or computer chips.
Here’s the logic:
— If importers have to pay a huge tariff, that makes their products much more expensive. The American-made competition won’t pay tariffs, so they will prosper. Then, to better compete, those foreign companies will move their factories here to avoid the tariffs, creating millions of jobs.
And here’s the criticism:
— Tariffs are inflationary. They raise prices for consumers and companies.
Once importers pay a tariff, the price of their goods goes up dramatically, so they’ll need to recoup most — if not all — of that increase when they sell the items. Yes, that helps U.S.-based products, but it also means those U.S. companies will have cover to similarly raise their own prices.
— American manufacturers are also customers. And since many American manufacturers use foreign parts, higher-priced imports mean their costs go up.
— Other countries are not passive. They will retaliate with their own tariffs (the way the Chinese did when Trump was president), which could badly wound U.S. exporters.
Moreover, many large American operations depend on subsidiaries overseas. Anything that raises their costs will hurt multinationals.
— Tariffs could tank the dollar, not save it. If foreign nations don’t do as much business with the U.S., they’ll need fewer dollars, undercutting its value.
— We can’t produce everything. Across the board tariffs could affect agricultural products the United States doesn’t have the climate to produce in bulk, like bananas or coffee.
— Any gains would take time. Factories can take a long time to expand or construct, while the negatives of tariffs would be felt right away. Even if the goals of the tariffs can be obtained, it would take years during which Americans would face inflation and possibly shortages.
What tariff advocates and critics say:
The Coalition for a Prosperous America doesn’t argue that a tariff doesn’t make imports more expensive. In fact, raising those prices is the idea, says the group, which is backed by manufacturers and farmers.
A 10% tariff on all imports would eventually spur growth by encouraging U.S. production, argues Jeff Ferry, chief economist of the CPA, in an online piece. “Tariffs can play an important role in rebuilding our manufacturing base, if they are done right.”
But that is very much a minority view.
The Committee for a Responsible Federal Budget — a nonpartisan think tank opposed to large deficits — estimates Trump’s 20% tariff would be like a $4 trillion tax increase over the next decade. The Peterson Institute for International Economics, another nonpartisan research group, believes the tariffs would cost the typical household $2,600 per year.
Analysis by the conservative American Action Forum came to a similar conclusion.
And the Institute on Taxation and Economic Policy, which focuses on tax issues, said poorer Americans would pay a much higher share of the increase.
The nonpartisan Tax Foundation criticized tariffs imposed by Trump when he was president (and they oppose the extensions by Biden). The measures have dampened economic growth, the group said.
The tariffs suggested by Trump now “would hike taxes by another $524 billion annually and shrink gross domestic product by at least 0.8%,” while costing 684,000 jobs, the foundation said.
Certainly, in the past the United States has made use of tariffs to nurture U.S. manufacturing, mainly in the 19th and early 20th century.
Tariffs typically are proposed in a couple situations.
When you’re trying to grow a new industry that needs time to develop and you want to keep it from being crushed. Or when you think the foreign companies aren’t playing fair — using slave labor, mistreating workers, fouling the environment or receiving subsidies from their governments.
Or sometimes, simply to protect an existing industry deemed important.
Thoughtful policymakers know there are pluses and minuses, even in the best of circumstances. They know you need to balance the goal of protecting U.S. manufacturers against the costs to other companies and to consumers.
And the higher the tariffs, the higher the costs to Americans.
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