As children, we learn by doing. When we place our hand on the open flame of a gas burner, as I did at about age 4, we learn that it is hot, it hurts, and it gets us yelled at, so we don’t do it again. Well, most of us don’t. As adults, we have developed the ability to learn by not only our own past experiences, but also those of others, and at least in theory, we can use our ability to reason to determine likely outcomes for our actions. So, when I read that cigarette smoking is responsible for certain diseases, then I can make the decision to not smoke, right? Okay, bad example, for I am a 3-pack-a-day smoker, but you get the point. We don’t need to drive our car over a cliff to know that it is not a good idea.
However, as you’ve often heard me say, it seems that we … the human race in general … fail to learn the lessons of history. We keep making the same stupid mistakes, over and over.
Yesterday, Donald Trump imposed new tariffs on Chinese imports, to the tune of $200 billion, in addition to the $50 billion previously imposed.
“Today, following seven weeks of public notice, hearings, and extensive opportunities for comment, I directed the United States Trade Representative (USTR) to proceed with placing additional tariffs on roughly $200 billion of imports from China. The tariffs will take effect on September 24, 2018, and be set at a level of 10 percent until the end of the year. On January 1, the tariffs will rise to 25 percent. Further, if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.
We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices. To counter China’s unfair practices, on June 15, I announced that the United States would impose tariffs of 25 percent on $50 billion worth of Chinese imports. China, however, still refuses to change its practices – and indeed recently imposed new tariffs in an effort to hurt the United States economy.
As President, it is my duty to protect the interests of working men and women, farmers, ranchers, businesses, and our country itself. My Administration will not remain idle when those interests are under attack.”
Even on the surface to those of us who are not economists, there are some obvious flaws with his plan. Make no mistake … there is no “if” here … there isn’t much doubt that China will impose retaliatory tariffs. But let’s take a look at another case, one from which we might have learned a lesson.
In 2009, American tire makers persuaded the Obama administration to impose tariffs on Chinese tires, and imports of tires from China fell sharply. But Chinese companies did not stop making tires in response to the tariffs — they simply moved production to other places, including to the United States.
Chinese tire manufacturer Giti, built a factory in South Carolina to make low-cost tires for Walmart. Did the move keep some jobs in the U.S.? Sure, but a study by the Peterson Institute for International Economics (PIIE) showed that consumers paid a hefty price: an extra $1.1 billion on tires as a result of a tariff that preserved, at most, 1,200 jobs. That is almost $1 million per job, for jobs paying an average of about $40,000.
The 2009 tire tariffs — and similar efforts by past administrations to tax everything from socks to solar panels — have generally failed to protect existing factories and jobs. The Chinese factory in South Carolina created new jobs for American workers but, in effect, the tariffs only moved jobs from one place to another … at a very high price.
Steel tariffs imposed in 2002 by President George W. Bush yielded similar results, penalizing not just consumers but companies that use steel to make other products, like construction companies and carmakers. There are about 140,000 jobs in the U.S. steel-making industry, but by contrast, 6.5 million who work in industries that buy steel and will be hit hard by Trump’s steel tariffs.
Did you know that General Motors sells more cars in China than in the U.S.? What do you suppose happens when China imposes tariffs on U.S. autos? Or when the Chinese government calls for a boycott on U.S. goods? As an authoritarian government, they do not operate under the same constraints as the U.S.
Trump claims that thus far his tariffs have not had much impact on the U.S. consumer, but if you are a savvy food shopper and pay attention to prices, you will have noticed that certain items have increased, some by quite a bit. And … on 18 December 2017, the price per gallon for regular fuel was $2.16. Today it is $2.84, a 31.5% increase.
Simply put, tariffs are taxes ultimately paid by American consumers, in the form of higher prices. In addition to the latest round of tariffs on China, there are the steel tariffs on nearly every nation, plus the retaliatory tariffs imposed on the U.S. by other nations. Remember back when Trump said that trade wars are ‘easy to win’? Guess what, folks … there are no winners. Trump has not only failed to learn the many lessons of history but is seemingly unable or unwilling to apply reasoning and logic in his decision-making process. And guess who’s going to pay the price, my friends. Not Trump, not his rich cronies …