The Proof Is In: Tariffs Are Hurting the U.S.

COMMENTARY Trade

The Proof Is In: Tariffs Are Hurting the U.S.

Aug 27th, 2019 2 min read
COMMENTARY BY
Tori K. Whiting

Jay Van Andel Trade Economist

Whiting provides the conservative true north on free trade through her research and writing.
All tariffs imposed should be eliminated and the administration should turn to pro-growth economic policies that work, such as lower taxes, fewer regulations, and free trade. AFP Contributor / Contributor / Getty Images

Key Takeaways

Tariffs are like a sales tax on imports.

Businesses thrive on certainty and the ability to plan five, 10, and even 20 years into the future.

While U.S. tariffs are taxes on Americans, retaliatory tariffs can also be damaging because they can reduce market access.

The Congressional Budget Office released its updated budget outlook last week, and it confirmed what analysts have said about U.S. trade policy for the last two years: The Trump administration’s tariffs are hurting the U.S. economy.

First, let’s review how these tariffs came about. 

In early 2018, President Donald Trump imposed tariffs on roughly $9 billion worth of imports, which included solar products and washing machines. Later that year, about $25 billion worth of steel and aluminum imports were subject to new tariffs. 

Then over the last 13 months, the president targeted more than $200 billion worth of imports from China, and another $300 billion worth of Chinese imports are set to see higher tariffs by the end of 2019. The most recent round is not factored into the Congressional Budget Office’s report.

In 2020, more than $500 billion worth of U.S. imports will face higher tariffs than in 2017.

The Congressional Budget Office points out three ways that these tariffs are hurting the economy. 

1. Making goods more expensive and reducing purchasing power. 

Tariffs are like a sales tax on imports. While White House trade adviser Peter Navarro has claimed that China is paying the tariffs, the reality is that American businesses and consumers bear the cost. The Congressional Budget Office acknowledged that “a larger share of the cost of the tariffs than previously estimated is passed along to U.S. importers.”

2. Increasing business uncertainty.

Businesses thrive on certainty and the ability to plan five, 10, and even 20 years into the future. When unexpected costs arise, or if regulations to receive tariff-free treatment change, plans must adapt. Capital that may have been reserved for business expansion may need to be reallocated to pay the higher costs. 

A turbulent economic environment can also deter investment, and new rules can require businesses to “make costly adjustments to their supply chains.”

3. Possibly causing retaliation.

While U.S. tariffs are taxes on Americans, retaliatory tariffs can also be damaging because they can reduce market access. This is especially true if the country imposing retaliation has access to supply of the goods in question from another source. 

U.S. agricultural products are a prime example, but rather than resolving the trade conflict, the Trump administration has chosen to use American tax dollars to provide subsidies to certain producers.

As a result of each of these factors, the Congressional Budget Office estimates that the tariffs will “reduce the level of real U.S. GDP by 0.3% by 2020 [and] real income for the average household by 0.4% by 2020.” A negative effect is also expected for real consumption and real private investment of 0.3% and 1.3%, respectively. 

American businesses have already paid more than $32 billion in new taxes, and the Congressional Budget Office estimates that the average family could lose roughly $580 in 2020. Another estimate by JP Morgan finds that Americans could lose as much as $1,000 following the additional tariffs on Chinese imports in 2019.

While the president argues that China’s economy is hurting more than the U.S., after more than a year it is very clear that neither country has gained from the conflict. 

The American people surely have not experienced new freedoms or benefits. Instead they are facing higher prices, which will only continue to rise as the next round of tariffs are imposed in the coming months.

It is far past time that the Trump administration admit that tariffs are a failed policy, and that in fact, they are counterproductive to achieving strong economic growth. 

All tariffs imposed should be eliminated and the administration should turn to pro-growth economic policies that work, such as lower taxes, fewer regulations, and free trade.

This piece originally appeared in The Daily Signal