Unintended harm to American companies is a recurring problem with tariffs, even those meant to protect American jobs from competition that our government deems unfair. After Bush imposed steel tariffs, steel-consuming industries pointed out that they employed far more Americans than the steel industry itself, and argued that the net effect of the policy on jobs was negative.
Anti-dumping laws, which put tariffs on foreign imports that are supposedly being sold at too low a price, usually target intermediate goods and therefore make the downstream American producers that use them less competitive. Daniel Ikenson, a trade-policy analyst at the Cato Institute, notes that the government, perversely, is forbidden by law from considering the impact of tariffs on these producers before levying the tariffs.
Then there’s the question of costs. Gary Hufbauer and Sean Lowry, a senior fellow and research associate, respectively, at the Peterson Institute for International Economics, calculated [PDF] that Obama’s tariffs on Chinese tires cost American consumers at least $900,000 for every job they saved for one year. That’s before taking account of job losses caused by lower spending by consumers on other products and by retaliatory Chinese tariffs. This very high cost per job, they point out, is consistent with research on other instances of trade protection.
In an interview, Hufbauer notes that our efforts to protect industries from competition have typically not resulted in their revival and impose extremely high costs for any jobs they save. He cites the textile and maritime industries, both of which have been protected for decades, as examples of these disappointing results.
Ramesh Ponnuru, “The High Cost of U.S. Protectionism”, Bloomberg View, 2016-07-01.
March 15, 2018
QotD: The self-harming reality of tariffs
March 6, 2018
Winning a Trade War Isn’t “Easy”… It’s Impossible!
Foundation for Economic Education
Published on 5 Mar 2018Trump wants to impose tariffs on steel and aluminum? Bad idea. We’ve been down this road before. Trade wars are short-sighted and economically destructive.
Ever wondered what caused the Great Depression? Check out this free eBook (available in mobi, epub, PDF, and audiobook formats!) by Larry Reed, “Great Myths of the Great Depression:”
https://fee.org/resources/great-myths-of-the-great-depression/
May 3, 2017
Softwood lumber, again
Last week, Megan McArdle provided a quick look at the son of the bride of the revenge of the softwood lumber dispute monster:
According to American lumber producers, this is because of the nefarious subsidies the Canadian government has granted to its timber producers. In America, most softwood timbering takes place on private land, and the lumber is priced to recover the full cost of owning and maintaining many acres of trees. In Canada, forest resources tend to be owned by the government, which sets “stumpage fees” (the cost for cutting down a tree, which used to be assessed per stump and is now usually assessed by board feet or cubic meters [PDF]).
The American producers complain that these fees are set too low, providing an unfair subsidy for Canadian timber, especially because British Columbia (which has a lot of timberland) bans the export of Canadian logs, so that American lumber mills are unable to get in on this sweet, sweet deal.
For variety, American producers occasionally also complain that Canada is “dumping” (basically meaning that a country is selling goods in a foreign market below the price at home. Since this is — except in rare cases such as pharmaceuticals — a stupid business practice, accusations of dumping tend to exceed actual instances by a healthy margin.)
[…]
The history of litigation on this is long, rich and arcane. Since the 1980s, the U.S. and Canada have been locked in a cycle whereby the U.S. complains that Canadian softwood lumber is too darn cheap, complaints are filed with various entities, and eventually both sides decide it’s easier to come to some sort of settlement rather than subject everyone to another endless hearing on the minutiae of the lumber industry. Then an agreement expires, American lumber producers say “Now’s our chance, guys! We’re going over the top!” and the magical cycle of birth and death, conflict and resolution, begins once again in the forest lands.
When trade bodies get around to ruling, those rulings are often mixed: “Yeah, okay, maybe there’s some subsidy in there somewhere, but you Americans are wildly overreacting, so cool it with the huge tariffs.” Which was basically my take on the dispute in 2004, when I last covered it. Research does not reveal any good reason to revise that view, especially because Canadian stumpage has evolved somewhat over the years. British Columbia now uses auctions [PDF] in its coastal forest areas, which should tend to drive the price of stumpage there to par with the world market.
We should also note that any subsidy, however bad for American softwood lumber producers, is actually good for the vast majority of Americans who do not work in forestry. This morning, people were throwing wild numbers around about how much a tariff would increase the price of a house or a box spring. I’d take those numbers with a hefty dose of salt, but undoubtedly, they will drive the price of softwood lumber products up somewhat, which means less money in the pocket of you, The Modern American Consumer. So even if American timber producers were completely right and their tariff were warranted, the American consumer would suffer.
September 2, 2015
Tariffs and Protectionism
Published on 25 Feb 2015
We’ll look at the costs and consequences of tariffs, quotas, and protectionism. How do tariffs affect consumers? What about producers? Who wins and who loses? Find out with this video.
We’ll apply the fundamentals we learned in the supply, demand, and equilibrium section of this course to real-world examples — like that of protectionism in the U.S. sugar industry — to determine lost gains from trade or deadweight loss, the tariff equilibrium vs. the free trade equilibrium, and the value of wasted resources as a result of tariffs.
May 11, 2015
QotD: Tariffs are generally harmful, but persist anyway
For another example, consider trade barriers such as tariffs. There are good economic arguments to show that we would be better off if we went to complete free trade. That seems puzzling — if we would be, why don’t we?
The answer is provided by public choice theory, the branch of economics that deals with the workings of the political market. A tariff makes the inhabitants of the country that imposes it worse off but the politicians who pass the tariff better off, since it benefits a concentrated interest group at the cost of dispersed interest groups. More concentrated interest groups are better able to pay politicians to do things for them. Trade policy is optimized, but for the wrong objective.
David D. Friedman, “Why Improving Things Is Hard”, Ideas, 2014-07-08.
February 11, 2013
Senate report calls for tariff cuts
In the Financial Post, Terence Corcoran looks at the good and not-so-good aspects of a recent Senate report on the reasons Canadians pay so much more for goods than Americans (even when the goods are identical and the currencies are trading at par):
Retail prices in Canada, seemingly across the board, are higher. Even with the Canadian dollar at par, the price of everything from running shoes to televisions and Chevy Camaros to books is said to be above U.S prices. One bank report once put the Canada-U.S. price gap at 20%.
Somebody’s gotta do something, everybody agrees. Enter the Senate committee with one of the most hard-nosed, market-driven overviews of how and why Canadians pay more for goods at retail. The report dodges and fudges some key issues, especially farm product supply management, which was seen by the committee and the retail industry as too politically hot to handle.
[. . .]
Even in this, however, the committee pulls its first punch. The recommendation to “review” such tariffs — watery phrasing in itself — also suggests “keeping in mind the impact on domestic manufacturing.” Sorry, folks, but you can’t have it both ways. Tariffs are protectionist devices for manufacturers that consumers pay for. If you want to reduce the price to consumers, the $3.9-billion in protection for manufacturers has to go. End of discussion.
What makes The Canada-USA Price Gap even more valuable is its compact insights into the many causes of higher retail prices in Canada. The economy is a complicated and often unfathomable series of market and price relationships beyond the power and even understanding of policy makers. The report recognizes that fact time and again.
