Remember Trump’s declaration that “trade wars are good, and easy to win”? How about “I am a Tariff Man,” or his repeated (inaccurate) claim that foreigners pay tariffs.
Have we ever had a less-informed President? (That’s a rhetorical question. Obviously, being ignorant is one contest Trump wins in a walk.)
Over the course of 2018 Trump imposed tariffs on about 12 percent of total U.S. imports, and many of those tariffs have been in effect long enough that we can get a first read on their consequences.
On Saturday economists from Columbia, Princeton, and the New York Federal Reserve released a paper, “The impact of the 2018 trade war on U.S. prices and welfare,” that used detailed import data to assess the tariffs’ impact. (The paper, by the way, is a beautiful piece of work.) The conclusion: to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it. And the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs made America poorer overall.
Krugman explains the essential findings of the cited paper, with graphs–you should click through for the details–and then gives examples.
Consider the following example: pre-tariff, the U.S. imports some good from China that costs $100. Then the Trump administration imposes a 25% tariff, raising the price to consumers to $125. If we just keep importing that good from China, consumers lose $25 per unit purchased – but the government raises an extra $25 in taxes, leaving overall national income unchanged.
Suppose, however, that importers shift to a more expensive source that isn’t subject to the tariff; suppose, for example, that they can buy the good from Vietnam for $115. Then consumers only lose $15 – but there is no tariff revenue, so that $15 is a loss for the nation as a whole….
Putting it all together, the Trump tariffs have raised consumer prices, rather than depressing foreign earnings. Some revenue has been gained, but there has also been what amounts to tax avoidance as consumers turn to other, untaxed sources of what we used to import. But this tax avoidance itself comes at a cost, so the U.S. as a whole is left poorer.
Now, the numbers aren’t that big. The new paper puts the net welfare loss at $1.4 billion a month, or $17 billion a year; that’s less than 0.1 percent of U.S. GDP. But winning it isn’t.
Stubbornly low crop prices have been exacerbated by the trade war that decimated the once-lucrative Chinese market for soybeans. China used to be the biggest buyer of U.S.-grown soybeans. But this year, in retaliation for similar U.S. tariffs on Chinese imports, China imposed a 25 percent tariff on imports of U.S. soybeans, resulting in a dramatic drop in shipments.
The American Soybean Association has elaborated on the problems. According to the organization, Trump’s actions have “rocked the foundation of a decades-old trade relationship” between U.S. soybean farmers and China, which has been the largest market for American beans. It has resulted in halted sales, plummeting crop prices, and a lack of security for farmers seeking funding for the 2019 season.
The value of U.S. soybean exports to China has grown 26-fold in 10 years, from $414 million in 1996 to $14 billion in 2017. China imported 31 percent of U.S. production in 2017, equal to 60 percent of total U.S exports and nearly one in every three rows of harvested beans. Over the next 10 years, Chinese demand for soybeans is expected to account for most of the growth in global soybean trade, making it a prime market for the U.S. and other countries.
U.S. soybean growers have realized a nearly 20 percent drop in soy prices since the threat of tariffs began last summer, and the future of soy growers’ relationship with China continues to be in jeopardy. China has pursued new means to procure soybeans and other protein crops, including maximizing soybean imports from other exporting countries, particularly Brazil.
Growers have taken to Twitter and other social platforms today with the hashtag #185DaysStillNeedTrade, along with the popular #RescindtheTariffs hashtag to continue demanding that the Administration bring an end to its lingering trade war with China and help restore certainty and stability to the soy industry.
Certainty and stability aren’t Trump’s strong suits, to put it mildly. Thanks a lot, “Tariff man.”