Tariffs are a tax on consumers, and because they frequently lead to retaliatory tariffs from trading partners, they result in overall price increases and unemployment in businesses related to the exports and imports in question.
That’s a cause-and-effect relationship that ought to be easy to spot, and yet politicians lately have tried to argue the opposite — that tariffs protect American jobs and help the economy.
A new paper provides evidence to refute those politicians. It finds that the tariffs imposed by the Trump administration four years ago have hurt the nation’s agriculture industry and could inflate food prices long term, something that should alarm everyone during this time of inflation.
The Biden administration has kept most of Trump’s tariffs in place, with the exception of some in the steel and aluminum industries. He ought to negotiate an end to all of them, especially those with China.
Despite serious disputes with the Chinese government over unfair practices, tariffs have not alleviated those problems. Meanwhile, China is the largest export market for U.S. agriculture, and tariffs have done little other than hurt American farmers and related industries.
That’s the conclusion of the Tax Foundation, a Washington think tank. In a paper published this week, economist Alex Durante uses government figures to demonstrate the harm.
The U.S. Department of Agriculture, he said, found that China’s retaliatory tariffs reduced U.S. exports by $27 billion between mid-2018 and the end of 2019. Soybean exports were hit especially hard, with a 71% reduction.
The losses were felt especially hard in Iowa, Illinois and Kansas, where a combined $3.8 billion in economic activity was lost, he said.
Tariffs can also be complicated. For instance, Trump-era tariffs hit seafood imports from China directly. However, much of the seafood in question is actually caught in the United States, exported to China, processed and packaged, then imported back to the United States. Tariffs, Durante said, hurt Alaska’s fishing industry and led to more imports from Russia, where relations now have been strained by Russia’s war in Ukraine.
None of this should be surprising. The effects of tariffs have been generally understood at least since the Great Depression, when Congress enacted a host of tariffs that many economists believe exacerbated and prolonged a bad economy.
As the Tax Foundation noted recently in a separate report, “Historical evidence shows tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.”
Durante argues that tariffs lead to companies holding excess inventory they can’t sell abroad. This may reduce prices in the short term, but in the long term, profits fall as companies invest less in future production, resulting in higher prices.
Some politicians argue tariffs protect jobs in select industries that are threatened by cheap imports. But they end up costing many more jobs in other parts of the economy that rely on those imports.
The upward pressure on prices, and concerns about a possible recession, ought to worry Americans most right now. President Biden could help at least some of that situation by working to reduce tariffs and reopening markets to U.S. producers, who could begin to expand again.