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The Folly of Protectionist Tariffs

May 15, 2019 in Economics

By Michael D. Tanner

Michael D. Tanner

Conventional wisdom holds that it is the “elites”
who are opposed to President Trump’s protectionist policies,
including his recent ramp-up of tariffs on Chinese goods, and it is
true, insofar as support for free trade increases with education
and income. But the reality is that poor and working-class
Americans will be hurt the most by Trump’s trade war.

Trump’s trade war will
hurt poor and working-class Americans the most.

Trump’s insistence to the contrary notwithstanding, most of the
cost of tariffs is paid by American consumers (through higher
prices), not by the countries being sanctioned. For instance, it is
estimated that the president’s latest round of
tariffs on China will cost the American family an average of at
least $767.

But that cost does not fall equally on poor and rich alike. To
state the obvious, $767 means a lot more to a poor family
struggling to pay its bills than it does to a wealthy one.
Moreover, tariffs are more likely to fall on goods and services
that the poor depend on, daily necessities of which they often lack
a reserve supply.

Consider that among the companies that have announced they will
be most impacted by the China tariffs are Walmart, Target, and
Costco, none of which are known as the store of choice for global
elites.

Studies show that the lower your income is, the harder you’ll be
hit by tariffs. Tariffs imposed by Trump last year have already
cost poor families 0.33 percent of after-tax
income, as opposed to 0.28 percent for wealthy families, and hurt
single parents even more than they hurt families. Trump’s latest
tariffs will likely be even more regressive. And while each new
tariff’s impact is relatively small, they cumulatively take a big
hit out of poor people’s income.

If that wasn’t bad enough, there is little doubt that an
extended trade war with China will damage the broader American
economy. Some economists estimate that Trump’s tariffs on
Chinese goods and China’s retaliatory tariffs on American
goods will cost the U.S. economy $62 billion in lost output. One
research group, Oxford Economists, fears that if the trade war
expands and tariffs on both sides are extended to the full range of
traded goods, it could reduce U.S. GDP by more than 2 percent, and
even push the U.S. economy into a recession. The Trade Partnership,
an industry group, warns that anywhere from 900,000 to 2 million
jobs could be at risk if the trade war drags on, roughly eight jobs
lost for every job saved. Very few of those lost jobs are held by
“elites.”

If we should …read more

Source: OP-EDS

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