The clear and obvious effect of import tariffs - Credit, BLS, via Mark Perry and AEI, by permission

The part of import tariffs that all too many fail to understand is that it is consumers being “protected” by them who actually pay them. That is, import tariffs on foreign goods entering the United States are paid by those inside the United States. Or, as we can also put it, Trump’s tariffs are making Americans poorer. This isn’t a known to be desired effect of economic policy.

However, it’s important to note that the real burden doesn’t come from the rise in price of the imports. It’s what the domestic producers do to us all in the absence of that foreign competition which is important:

The clear and obvious effect of import tariffs – Credit, BLS, via Mark Perry and AEI, by permission

If you’re unfortunate enough to be shopping for a new washing machine, you can thank the Trump tariffs on imported washing machines, washing machine parts, steel and aluminum for the largest three-month price increase — 16.4% from February to May this year — in the 40-year history of the BLS series for Major Appliances: Laundry Equipment that started in January 1978 (see chart above). In the May CPI report (see Table 2), the one-month increase in the CPI for Laundry Equipment of 7.4% in May followed a 9.6% increase in April, and in both months was the largest monthly price increase of any of the 300 individual CPI categories or sub-categories. For the month of May, the 7.4% increase in the washing machine series was twice the increase of the next highest increase of 3.7% for educational books and supplies (mostly college textbooks).

What’s worse than this price rise is that this is planned. This is the desired outcome from the people who imposed these taxes.

As above though, the important effect isn’t that foreign washing machines, or their parts, are now more expensive. It’s that domestic producers are now free of that competition – at low prices at least – from those foreign producers. What happens when a producer can raise prices? Well, they’re capitalists, right? Trying to make the maximal profit they can – gouge consumers as best they can. It’s competition which stops or ameliorates that. Remove some of the competition and thus domestic producers can, so they do, raise prices. Anyone doubting this should just look at recent within the US prices of steel.

Again, note that this isn’t some defect with the plan, it’s the point of it. Domestic producers weren’t making enough money. So, limit that foreign competition so they can raise prices. Who gets to pay this? That’s right, domestic consumers do.

As I’ve said before, a protectionist is someone who argues you should be poorer so they can be richer. This is exactly what is happening here, tariffs are being imposed so that domestic consumers can be forced to pay more to domestic producers. The only question being, well, why do we listen to these people? For they’re trying to do the same to hundreds of billions of dollars worth of more imports, aren’t they? The cost to us consumers of which will be?

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6 COMMENTS

  1. Of course tariffs are taxes on purchasers of foreign goods. But domestic manufacturers of those goods, and their labor force, benefits from the tax placed on their customers pursuing other alternatives. Factory and farm workers perceive that they benefit by tighter enforcement of the southern border, and politicians like Trump highlight the “harm” of Mexicans being willing to work for less pay, of “jobs being lost” (which is a good thing, even if having to learn new skills is unpleasant).

    Tariffs are government picking winners and losers. The real problems are not that someone has to pay them but the incentive effects: (1) People divert resources from pleasing the customer toward being the next industry to use government to preclude competition, and (2) since no one yet has still been voted out of office based on the magnitude of the national debt, this windfall to government will tend to flow directly into new programs that could not be justified on their own merits.

    Separately, the spike in prices on the announcement of the tariff may reverse as people find ways to evade the tariff or substitute other goods. To measure the effect of a tariff at the top of the spike is to exaggerate it. Moreover, Trump’s vague message and Kudlow’s focused message is that tariffs are not a permanent policy but a response to foreign misbehavior, aimed at changing that behavior, which suggests that policy reversals are likely.

    • Headline at FoxBusiness.com: “Importers snap up cheap US soybeans as China stops buying” — Who knew there was an alternative to paying China’s retaliatory tariff on US soybeans?! Some of those soybeans Brazil is buying may even find their way to China, where they will no longer be US soybeans although they are.

      Of course, all the time that one group spends devising these punishments, and another group spends devising ways around them, are unproductive. That was the thinking that led to GATT and WTO.

  2. It can even happen even if domestic producers don’t increase their prices. As the whole reason detre of tarrifs is that domestic consumer prefer foreign goods because domestic producers can’t get their prices as low as those dasterdly foreigners, forcing foreign prices up can mean going from a choice of $50 foreign or $75 domestic to $100 foreign or $75 domestic. Without any rise in domestic prices, domestic consumers are forced to pay more.

  3. All true in every particular, yet missing the real point of the tariffs. When it comes to The Donald you always have to look for the long game.

    Trump offered the EU a free trade deal, provided they were willing to trade on a level playing field. He wanted rid of the non-tariff barriers. They said no. So tariffs it was. The whole and entire point of the tariffs is to weaponise trade, to use trade as a club with which the beat the EU about the head until they come to their senses.

    The deplorables are happy with this. They know Trump is looking after their long-term interests, despite the short-term pain. Hence Trump’s 85% approval rating among Republican voters.

  4. Mighn’t it be worth asking why foreign manufacturers are more price competitive? Is it economy of scale? If it is, tariff protection may give domestic manufacturers a chance to increase market share & benefit from the same economy of scale. In which case, provided there’s competition amongst domestic manufacturers, there’s no reason the benefits won’t be passed on to the consumer in lower prices. In the longer term, tariffs having reduced or marginal net effect.