Would a Tariff Wall Really Make America Great?

Would a Tariff Wall Really Make America Great?

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The U.S. Chamber Commerce thinks Donald Trump’s trade policy is a disaster.

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240 years ago, Economics pioneer Adam Smith stated that “how individuals freely cooperating with one another can generate immense prosperity.” Free international trade resonates with Adam Smith’s philosophy. However, Donald Trump is selling his idea of imposing 35 percent tariff on Mexican imports and a 45 percent tariff on Chinese goods, claiming this proposal will make America great.

Would such a tariff wall with two of American’s major trading partners really benefit the economy of America? This blog will deeply discuss the evidence against this statement.

Moody’s Analytics’ model suggests that both China and Mexico would fall into recession, if Trump levied his proposed tariffs and China and Mexico retaliated with tariffs of their own. The United States would also fall into recession. “Up to 4 million American workers would lose their jobs. Another 3 million jobs would not be created that otherwise would have been, had the country not fallen into a trade-induced downturn.”

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In 2002, the bad consequences of increased steel tariff shows a tariff wall has negative effect.

Economist Walter Williams estimated that “the steel tariffs caused at least 4,500 job losses in no fewer than 16 states, with over 19,000 jobs lost in California, 16,000 in Texas and about 10,000 each in Ohio, Michigan and Illinois. In other words, industries that use steel were forced to pay higher prices, causing them to have to raise prices on what they produced. As a result, they became less competitive in both domestic and international markets and thus had to lay off workers.”

There are other historical lessons prove that Donald Trump’s tariff wall proposal would worsen America’ economy.

For example, in 2009, Obama administration imposed high tariff on tire imports from China. Peterson Institute for International Economics’ study shows this move “saved a maximum of 1,200 jobs, but the cost per job saved was at least $900,000 in that year. The total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011. As a knock-on effect, the additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment … [and costing] the US economy around 2,531 jobs.”

In 2002, Bush administration increased tariffs on several types of imported steel from 8% to 30%. “The clear beneficiaries of the steel tariffs were steel industry executives and stockholders and the 1,700 or so steelworkers whose jobs were saved.” However, according to Consuming Industries Trade Action Coalition, “steel-users — such as the U.S. auto industry, its suppliers, heavy construction equipment manufacturers and others — were harmed by higher steel prices. It is estimated that the steel tariffs caused at least 4,500 job losses in no fewer than 16 states, with more than 19,000 jobs lost in California, 16,000 in Texas and about 10,000 each in Ohio, Michigan and Illinois.” The downstream companies had to pay higher prices to buy steels, which caused their products more experience to produce. Consequences, U.S. auto companies, heavy construction equipment manufacturers lost their competitiveness in both domestic and international markets and had to cut labors.

Historical incidences has showed that high tariff harms a nation’s economy than the benefits it does to the nation. Adam Smith also has taught us that prosperity is maximized by how individuals cooperate with each other freely. Therefore, imposing 35 percent tariff on Mexican imports and a 45 percent tariff on Chinese goods won’t make America great, but worse.

 

References:

http://www.politico.com/story/2016/04/donald-trump-trade-policy-recession-chamber-of-commerce-221473

https://www.uschamber.com/above-the-fold/trump-s-trade-policies-would-make-america-recession-bound-again

https://www.uschamber.com/above-the-fold/here-reminder-international-trade-makes-america-great

http://www.gallup.com/poll/189620/americans-remain-upbeat-foreign-trade.aspx?g_source=trade&g_medium=search&g_campaign=tiles

https://www.uschamber.com/above-the-fold/study-tpp-means-more-exports-higher-wages-and-better-jobs-america

https://www.uschamber.com/above-the-fold/would-tariff-wall-really-protect-us-jobs

https://www.washingtonpost.com/news/wonk/wp/2016/03/25/donald-trumps-trade-war-could-kill-millions-of-u-s-jobs/

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