Why Tariffs Will Benefit American Consumers

In a recent piece for the Washington Post, former CNN correspondent Heather Long and her colleague Andrew Van Dam contend that President Trump’s tariffs will hurt Trump voters the most. Their conclusion is unsurprising, as the mainstream media’s raison d’être is to rebuke the president and gaslight his supporters into thinking they have cause to abandon him.

Don’t let them fool you. Tariffs are in America’s best interest, and they will help precisely the people Trump says they will: the working class.

The “Truth” is a Lie
Long and Van Dam argue that tariffs are bad because they increase prices and could cause a trade war. Higher prices are bad for American consumers, and will disproportionately hurt America’s poor “Walmart shoppers,” they contend. This sounds reasonable, but only because it ignores the other side of the equation.

In reality, every consumer is also a producer, and therefore what harms producers invariably harms consumers down the road.

A common sense example illuminates this point. The year is 1993. You work at an automobile factory in Michigan. Life is good—you can support your wife and three kids on a single income. Then President Bill Clinton signs NAFTA, a free trade agreement between Canada, the United States, and Mexico. Suddenly, your factory must compete directly with another factory in Mexico. It’s hardly a fair fight: not only does the Mexican government subsidize American automakers who relocate their factories, but Mexico’s environmental laws are lax, and Mexican workers earn just one-fifth of what you do.

Needless to say, the factory moves to Mexico and you lose your job.

Bill Clinton said NAFTA would make goods cheaper. But they’re not cheaper for you—you don’t have a job. The same is true for everyone else who lost his job. The lesson here is that free trade doesn’t benefit everyone—there are winners and losers. Winners save a minimal amount on their goods; losers lose everything, their jobs, their independence, and their dignity. Since 2001, when China joined the World Trade Organization (WTO) and America’s market barriers fell, we have lost a net 5 million manufacturing jobs. That’s bad, but it doesn’t tell the whole story.

Manufacturing is an anchor industry upon which predicate industries depend. A factory is like an oil field or a mine: it brings wealth into a community, and this wealth supports an ancillary service sector that otherwise would not exist. Hairdressers, waitresses, and accountants depend upon miners and factory workers—not vice versa. The Bureau of Economic Analysis estimates that each dollar of manufacturing output supports $1.48 in additional spin-off output. Therefore, one manufacturing job supports roughly 1.5 additional jobs. This is called a multiplier effect. And no, manufacturing’s multiplier effects are not subject to the broken windows fallacy critique because manufacturing is an anchor industry that generates new wealth.

In fact, manufacturing’s multiplier effect may be even higher. A study from a consulting firm working out of the University of Maryland found that one manufacturing job supports 1.92 additional jobs. Regardless of whether or not we can tether an exact figure to this proposition, the fact remains that when America loses a factory, it doesn’t just lose a factory—it loses an anchor, and therefore everything tethered to that anchor. In the end, those 5 million lost manufacturing jobs likely led to an additional 7-10 million jobs evaporating.

This is part of the reason why America’s unemployment rate is so high: based on data from the U.S. Bureau of Labor Statistics, I estimate that the real unemployment rate is roughly 13 percent, or almost three-times the “official” figure. This means some 23 million Americans are currently unemployed. The trade deficit, and America’s deindustrialization, is largely to blame for these high numbers. Likewise, according to the Federal Reserve Bank, America’s labor participation rate is at 62.8 percent (down 5 percent from 2001, when China joined the WTO). This is the lowest it’s been since 1977, before the age of deindustrialization. Although these feedback loops are well-understood, the free trade brigade (an unholy alliance of media pundits like Ben Shapiro, government bureaucrats, and tenured academic economists) refuse to recognize them. Instead, they demand ever more “free trade” with China’s communist dictatorship.

Life Imitates Art
Back to our story. After three months of searching, you finally find another job, waiting tables at Lindy’s Deli. The pay’s not very good, but at least you have a job—unlike many of your buddies from the factory. A month later your friend Joe gets a job at another restaurant, making even less than you. The same thing happens to Frank the next month. That makes sense: all those unemployed factory workers are competing for jobs, which gives bosses leverage to reduce wages. You’re one of the lucky ones.

Remember when Bill Clinton said that NAFTA would make goods cheaper? Well, they’re not cheaper for you, since waiting tables pays less than building automobiles. Nor are they cheaper for anyone else in your town, since more competition for jobs means lower wages. This brings me to the second lesson: the nominal cost of goods (sticker price) doesn’t matter, what matters is their real cost (how much you can buy relative to your income).

Pretend NAFTA reduced prices in your town by 5 percent, but wages also declined by 5 percent because of offshoring. Now what? An economist could truthfully say that NAFTA benefited American consumers by reducing prices—but that truth is also a lie, since NAFTA reduced wages by the same amount. In the end, NAFTA had no effect on prices in real terms. Bill Clinton was wrong. NAFTA was a sham.

In 2011, an economist at Princeton University found that the average wage cut for those American workers displaced by offshoring was 17.5 percent—and that does not include the millions of people who dropped out of the labor force altogether. Further, the job loss caused by globalization has caused American wages to stagnate. According to data from Pew Research, the median hourly wage in 1973 was $22.07 (in 2014 purchasing power), whereas the median hourly wage in 2014 was just $20.74. Essentially, the median American is economically worse off than he was nearly 50 years ago (technological improvements aside).

The American dream is dying, and free trade is to blame.

Filling the Gaps
Long and Van Dam’s second point is that Trump’s tariffs may start a trade war. Specifically, they note that China is targeting American pork and soybean producers with retaliatory tariffs. Let’s hope we do get a trade war—it may be the only way to force Congress to take Chinese neomercantilism seriously. Nevertheless, Long and Van Dam’s claim is absurd.

To begin with, raw commodities like soybeans and pork are fungible. That is, American pork is indistinguishable from Canadian or Brazilian pork. As such, these retaliatory tariffs would have no effect on American pork producers: the Chinese will simply buy more Canadian and Brazilian pork, and America will sell more pork to Canada and Brazil—we will “fill in the gaps.” Unsurprisingly, America’s hog farmers realize this, and most aren’t concerned. According to a 2017 report in the National Hog Farmer:

China imported additional 3 million tons by the end of April 2017, making it the No. 1 pork importer last year. As a result, Hayes says it kept the European Union and Canada busy while the United States backfilled pork to the remaining countries. “We (U.S.) are getting the benefits of China without actually shipping a whole lot of product there,” notes Hayes.

China will not hurt America’s pork industry with tariffs because pork is fungible. The same goes for soybeans. Long and Van Dam should know better.

Now suppose that China imposes retaliatory tariffs on non-fungible goods, like American aircraft components. Won’t this hurt American producers? Sure. But remember, in 2017 American companies sold China $130 billion worth of goods; meanwhile, Americans bought $505 billion worth of Chinese goods, according to the U.S. Census Bureau. As such, Chinese producers benefit far more from trade than do American producers, and on balance, American producers are actually harmed by trade with China. In the event of a “full-scale” trade war, American producers would benefit by reclaiming American market share more than they would be harmed by losing access to China’s markets.

Likewise, this imbalance gives us leverage over China. Rather than skulking about crying about tariffs, the mainstream media, pundits like Ben Shapiro, and the effete husk that is the GOP should be thinking of ways to use tariffs to force China to pay for the $500 billion in intellectual property it steals from America annually. If China honored America’s property rights—just as we honor theirs—we would actually have a trade surplus. Tariffs can help redress this issue.

America holds all the cards. It’s time we played our hand.

Photo credit: iStock/Getty Images

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