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Trump’s Tariffs and the Common Man

The best example of how tariffs can cause economic devastation is the Smoot Hawley Tariff Bill. Remember that reference from Ferris Bueler? The Great Depression started as a recession similar to the previous two that occurred after 1900. Our nation fairly quickly recovered from Black Thursday (1929) with unemployment returning to around 9% within 18 months. Then Hoover against the urging of almost every economist in the US started a global tariff trade war. Unemployment went up to 25% and the Great Depression persisted until WWII was in full swing. It was only after the start of the Great War that FDR abandoned his progressive agenda, basically changed out his entire cadre of advisors, and became an industrialist building up our military production to win the war.

What's to be learned from this vs our experience with China? First off, we didn't just pick the fight with China as Hoover did. Trump was retaliating against China which had closed off their economy from the US. They were stealing our technology, not allowing us to sell to their populace etc. He was right to retaliate until they were willing to play fair.

Have things changed? Yes. The West has moved supply chains out of China for other Asian alternatives and China's economy is now in free fall as they enter a demographic winter with too few new workers to support the rapidly expanding geriatric class.

We are in a better position to negotiate a fair footing with China. Trump was not wrong to fire a warning shot across their bow.

Trump’s Tariffs and the Common Man

Protectionism is sold as good for workers, but the overwhelming evidence is the opposite.

By The Editorial Board, WSJ

Updated Jan. 2, 2024 8:30 am ET

With Donald Trump leading the 2024 polls while calling for a 10% universal tariff, the new GOP protectionists are trying to sell this idea as a boon for the working class. The evidence exposes this folly: Trade wars invite painful retaliation, prop up politically favored industries at the expense of others, and raise prices on consumers like an invisible tax. They hurt the average worker.

The economic literature on this point is voluminous. To pick one place to start, here was the conclusion of a study of Mr. Trump’s last trade wars, written in 2019 by two Federal Reserve economists: “We find that U.S. manufacturing industries more exposed to tariff increases experience relative reductions in employment as a positive effect from import protection is offset by larger negative effects from rising input costs and retaliatory tariffs.”

Want raw data? Since 2018, when Mr. Trump began his tariff spree, which President Biden has mostly continued, manufacturing employment in the U.S. is up modestly, 3.4%, according to federal figures. That increase looks like the continuation of a trend that began in 2009, and it’s still roughly a quarter below the employment peaks of the 1990s. See the nearby chart and try to spot Mr. Trump’s manufacturing renaissance.

Or consider steel jobs. Employment in iron and steel mills and ferroalloy manufacturing, compared with when Mr. Trump announced his metal tariffs in March 2018, is up 800 souls, or 1%. Yet in the same period, employment in steel-product manufacturing from purchased steel fell by 1,600 workers, or 2.8%.

This reveals what tariffs often do in real life, which is to rob some anonymous Peter to pay some politically powerful Paul. In their earnings calls after nearly a year of Mr. Trump’s metal tariffs, steel makers bragged about record profits, while Whirlpool, Caterpillar and others lamented new costs. Ford pegged its annual hit at $750 million, and the profit-sharing checks sent to its factory workers “would be 10 percent higher were it not for tariffs,” the Detroit Free Press reported.

The public also foots the bill. “U.S. tariffs continue to be almost entirely borne by U.S. firms and consumers,” said a 2020 analysis by economists at the New York Fed, Princeton and Columbia. A study by the Peterson Institute for International Economics found that each job created or saved by Mr. Trump’s steel tariffs cost $900,000. His tax of up to 50% on imported washing machines fared little better, according to a 2019 estimate, supporting 1,800 jobs at a cost of more than $800,000 each.

That last paper is worth a read in particular because it shows how tariffs distort a market. After Mr. Trump’s import tax was imposed, prices on washers went up 11.5%, or about $86, and “all major brands increased prices,” with “no clear distinction between domestic and foreign brands.”

Meantime, prices for clothes dryers, which were not subject to the tariff, rose 11.4%, or $92. Since washers and dryers are often sold as a pair, the authors speculated that manufacturers split the higher markup between them.

Robert Lighthizer, Mr. Trump’s chief tariff strategist, recently dismissed such studies as biased in favor of trade. In the face of clear economic evidence, his response is to close his eyes to it. “If all you chase is efficiency—if you think the person is better off on the unemployment line with a third 40-inch television than he is working with only two—then you’re not going to agree with me,” he told the New York Times. “My view is production is the end, and safe and happy communities are the end. You should be willing to pay a price for that.”

This is the hubris of every politician who wants to play social engineer to a continental nation of 330 million. If preserving one Ohio job in steelmaking kills two Michigan jobs in steel manufacturing, well, it takes breaking eggs to make a protectionist omelet. Pressed to react to studies saying that jobs saved via tariffs cost the public nearly $1 million apiece, Mr. Lighthizer praises the virtues of inefficiency. Forget the drain on the productive economy and the lower living standards that result.

The reality is that U.S. manufacturing output is not far from record highs. Yet because of improvements in productivity and automation since Mr. Lighthizer’s good old days of the 20th century, fewer people run the factory. Doing more with less sounds to most Americans like an economic gain, which isn’t to say that everyone always wins in the short run. But a dynamic economy will always beat a stagnating one and everyone will benefit.

The way to create prosperity for the forgotten man is to compete and innovate, not to have the government mandate hidden inefficiencies to punish some and favor others.

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