Even the Valley Hurt by Tariffs

The First Law of Economists: For every economist, there exists an equal and opposite economist. The Second Law of Economists: They’re both wrong. – Economist David Wildasin It has been accurately noted that economists don’t agree on much. Consider the example of the Obama administration’s nearly $1 trillion economic stimulus package, passed during the Great Recession. You can find well-known economists who think that the spending package was far too big. You can find others who believe that it was far too small. Too big? Too small? At least no one says that it was just right. There is one area of policy where the First Law of Economists doesn’t hold: international trade. In a 2009 survey by the American Institute for Economic Research, 83 percent of economists agreed the United States should “eliminate remaining tariffs and other barriers to trade.” Since 2009, the numbers have been even more one-sided. In a 2012 survey of economists by the University of Chicago, 98 percent of respondents agreed that Americans are better off as a result of the North American Free Trade Agreement. In the university’s October 2016 survey, 100 percent of respondents agreed that levying import tariffs to increase U.S. production is a bad idea. One hundred percent. In the March 2018 survey, 100 percent of respondents agreed that U.S. tariffs on steel and aluminum will not improve Americans’ welfare. The reason for unanimity is that the economics of free trade are simple. And the evidence is both dramatic and clear. International trade is not a zero-sum game with a winner and a loser. Rather, it’s a series of voluntary exchanges that make each side better. American consumers value an LG washing machine more than the $650 required to purchase one. American consumers and the South Korean appliance company are both made better off with each purchase. We can impose a tax on imported washing machines, like the 50 percent tariff passed in January, in order to steer consumers in the direction of American-made machines. But the effect is to increase the price of all washing machines. This makes American consumers worse off and makes the entire U.S. economy smaller. Even if our goal is simply to protect Maytag and other American appliance manufacturing workers from foreign competition, we would actually do less damage to the economy by simply writing the Maytag employees a check. There are much more efficient ways to redistribute income than import taxes. This is why President Donald Trump’s recent posturing on trade is so worrisome. Even if the president’s actions are simply “The Art of the International Trade Deal,” meant to extract advantageous terms during trade negotiations, we cringe at the harm that has already been done. One year ago, the Trump administration withdrew from the Trans-Pacific Partnership. In December, TPP signatory Japan reached a free-trade deal with the European Union that eliminated 95 percent of all tariffs. European agricultural producers gained access to Japan’s highly lucrative agricultural markets, while U.S agricultural producers remain shut out. In January, the Trump administration imposed a 30-percent tax on imported solar panels. The increased cost of inputs is already harming American solar companies, including ones with a significant presence in the San Fernando Valley. SunPower, which has a facility in North Hollywood and which built and operates the world’s largest solar photovoltaic installation in the Antelope Valley, announced that these tariffs will cost the company $50 million in 2018 and $100 million in 2019. The Solar Energy Industry Association estimates that 23,000 American jobs will be lost. “There’s no doubt this decision will hurt U.S. manufacturing, not help it,” said Bill Vietas, who heads Cincinnati-based RBI Solar. On March 8, the president signed a 25-percent tax on imported steel. Prices for American-made steel increased by 4 percent on that day alone. Prices are up 35 percent since Trump’s election. According to industry analysis, while tariffs seek to protect 140,000 U.S. steelworkers, they threaten 6.5 million workers in steel-dependent industries. Due to increases in the price of steel, Swedish manufacturer Electrolux suspended its planned $250 million Tennessee plant expansion, and Volvo is reconsidering the scope of its planned expansion of a South Carolina plant. Trump-authored trade restrictions could result in the loss of 2,000 U.S. auto manufacturing jobs in Volvo’s South Carolina plant alone. According to analysis by the nonpartisan Trade Partnership, tariffs can be expected to create a net loss of 146,000 American jobs across various metal-using sectors. This estimate does not include the effect of retaliation by U.S. trade partners, which will surely affect industries well beyond those using steel. The 30-percent steel tariff passed by President George W. Bush in 2002 and abandoned in 2003 reduced U.S. jobs and GDP, with one study estimating a total loss of 200,000 American jobs. We might forgive Bush for his tariffs. In the early 2000s, a mere 83 percent of economists held that trade restrictions are bad. Donald Trump apparently seeks to defy all economists. Matthew Fienup is executive director of the California Lutheran University Center for Economic Research and Forecasting in Thousand Oaks.