Be careful with these micro-summaries that are ubiquitous on Twitter:
Welker: Do you acknowledge that consumers will ultimately pay more if there are more tariffs. Do you acknowledge that?
Vance: No, I don’t. Economists disagree about the effects of tariffs.. pic.twitter.com/iORjF3nP1W
— Acyn (@Acyn) August 25, 2024
In fact, Vance explicitly agreed that tariffs can raise prices. But he says that's offset by job gains:
It causes this dynamic effect where more jobs come into the country. Anything that you lose on the tariff from the perspective of the consumer you gain in higher wages, so you're ultimately much better off. You have more take home pay, you have better jobs.
This is a more sophisticated argument in favor of tariffs, but as it happens, it's just as wrong. Economists are pretty unanimous about the basic shape of things: tariffs can increase employment in the industries that get protection, but this is offset by decreases in other industries and by retaliatory tariffs. The net effect on jobs is almost always negative. Here's a sampling of research results:
- Joint Economic Committee: "Research shows that tariffs eliminate more jobs than they create."
- Tax Foundation: "We estimate [Trump's] proposed tariffs would reduce...hours worked by 684,000 full-time equivalent jobs."
- Autor et al.: "The net effect of import tariffs, retaliatory tariffs, and farm subsidies on employment in locations exposed to the trade war was at best a wash, and it may have been mildly negative."
- World Bank: "US tariffs and retaliatory tariffs had negative impacts on job postings. In contrast, the protectionist impact of tariffs on US jobs is indistinguishable from zero."
- New York Fed: "Given the history of protecting industries with import tariffs, we can conclude that the 25 percent steel tariff is likely to cost more jobs than it saves."
- Brookings: "When economists have attempted to add up the net effect of Trump’s tariffs on jobs, any gains in importing-competing sectors appear to have been more than offset by losses in industries that use imported inputs and face retaliation on their foreign exports."
- Federal Reserve: "Our results indicate that tariffs have been a drag on employment and have failed to increase output.... For manufacturing employment, a small boost from the import protection effect of tariffs is more than offset by larger drags from the effects of rising input costs and retaliatory tariffs."
This is all in addition to a unanimous consensus that tariffs reduce GDP and cause significantly higher prices for consumers:
The absolute best you can say about Trump's tariffs is that (a) they will be a huge tax on US consumers, (b) they will slow economic growth, and (c) maybe, just maybe, they'll have no impact on jobs. But most likely they'll reduce employment too.
The question what JD Vance says about tariffs is as interesting as the question how many pins can dance on the head of an angel.
It's what they're going to sell to their supporters, so...
... (a) they will be a huge tax on US consumers, (b) they will slow economic growth, and (c) maybe, just maybe, they'll have no impact on jobs. But most likely they'll reduce employment too.
In other words, (a) CONSUMERS WILL PAY MORE, (b) consumers will suffer generally, and (c) consumers MAY not suffer by other means but probably will. That is, the tweet was specifically correct in one way and generally correct in two others.
But oh, Vance made a qualifying remark that arguably could be interpreted as superficially agreeing with the tweet, albeit as part of a false argument, so we MUSTN'T JUMP TO CONCLUSIONS.
Honestly I am SO tired of people from the MSM to the blogosphere cleaning up after these morons. First the Felon, now Couch Boy. They are dangerously ignorant fools AND they are liars. Why cover for them?
This exactly.
And beyond that, we know damn well that any tariffs that Trump initiates will not be well-thought-through and strategic ones targeted to be most likely to maximize benefits and minimize harm to the US economy as a whole. Instead, Trump will just slap tariffs on whatever goods/nation some last weirdo in his administration flattered him about.
(Recall when, during his administration, Trump slapped tariffs on steel imports, which didn't really help the US steel industry but sure as shit harmed the many, many US industries that use steel--a globally traded comodity--to make high-end manufactured goods)
And to the extent he *is* strategic, it'll be failed-democracy-style strategic: he'll use tariffs to punish/reward industries (or individual companies) that support him personally.
+1
Broad based tariffs, esp. if one is going to get rid of income taxes and us tariffs instead, will kill the economy.
Anti-dumping measures are needed--not as a fund raising measure, but to keep markets from being skewed.
Selective tariffs and other incentives to maintain capacity in different areas is a different story. Also needed, and also not for raising money.
As the epidemic showed, we need to be able to make PPE during a crises--but in normal times, we can not compete on price. It wasn't a good thing to be having China making PPE for the whole world. How to make this work? Have the gov't. buy US made goods, keep stockpile up to date and pay companies to keep some excess capacity on hand. Require medical supply companies to maintain some inventory in the US and maybe give them a tax incentive to buy American. Tariffs should only be used to stop dumping in this case, and should be suspended during emergencies. Note: this will be hard to do well--every manufacturer will want protection for their goods.
Companies make more money with "just in time" delivery, no inventory, and no excess capacity. The definition of a fragile supply chain....domestic or not.
Conservatives always love saying that whatever their nonsense du jour is it will be offset by somehow increasing jobs.
Though it never happens the people who vote for them love hearing it because they can stop thinking right there about something that sounds complicated. It's like a magic talisman they can hide a lot of anxiety behind, like almost everything else that appeals to conservatives.
You wouldn't cite Cato on taxes or government regulation. Why cite Peterson -- described as "the locker room of the Team Globalization and Free Trade cheering squad" -- on globalization?
1) These estimates are all horseshit. I have been in the room (running the SAS database programs, in fact) when these kinds of domestic production / foreign production estimates were generated. They have so many free parameters that you can get them to yield pretty much whatever you want.
Economics is in general horseshit. Once people stopped believing in God another source of justification was needed. Economics evolved to provide that justification and replace Theology as the Queen of the Sciences.
2) The "liberal" case for globalization was that the winners would subsidize the losers out of the positive sum benefits of globalization. That never happened.
For globalization in general big promises were made by economists and of course they could crank out models to "prove" how it would work. But we don't have to resort to models to judge how well globalization has worked. For working people it mainly boils down to real wages, and these have not improved for fifty years by the CPI. GDP growth has not improved either. The things in the "basket" that the price indexes are based on are better, but that improvement is based on better technology, not having things made in other countries for much lower wages. Wages have fallen far behind productivity and continue to do so.
In fact globalization has not worked how economists promised - they got lots of things wrong, if they didn't actually have the interests of capitalists in mind all along. It is amazing how people continue to assume that economists can make predictions when they have almost always been wrong.
The automobile industry, one of the few major remaining domestic manufacturing industries, has been heavily protected, with import quotas, bailouts, and yes, tariffs. The 25% tariff on light trucks is still in effect and doesn't seem to have prevented people from buying them.
This does not mean that the economy should be turned over to Trump, who obviously has no understanding whatsoever of tariffs. But it's long past time that corporate globalization, which has never been aimed at the welfare of US workers, should be rethought.
+1 for Snowball and Skeptic. A tariff is a tax, and taxes tend to reduce employment, all other things being equal. But there's no reason for all other things to be equal.
[The 25% tariff on light trucks is still in effect and doesn't seem to have prevented people from buying them.]
One of the things that did happen though is that the Japanese build their light trucks in the US to avoid the tariffs. That arguably increased jobs but also just as arguably increased the price of trucks. For example Chinese pickup trucks apparently cost about $15,000 though they presumably don't meet US regulations and emissions. People buy US made pickup trucks at the higher price because that is all they can buy.
"though they presumably don't meet US regulations and emissions."
And this is where the Cato Institute would step in and argue that safety and emissions regulations harm US consumers, and that people should be free to choose whether to buy more expensive, safer, and more environmentally friendly models, or not. Etc. Etc. Etc.
Economics only has one argument -- the fewer the restrictions on the market, the better. And that one argument can be applied to undermine minimum wage laws, worker and consumer health and safety regulations, environmental regulations, and import restrictions.
The real question is whether a person chooses to apply that argument in a particular situation. That is what you need to keep your eye on. Some people (like Kevin) choose to apply that argument when discussing import restrictions, but not when discussing environmental regulations, for example.
The 25% tariff on trucks was put in place at a time when European made trucks were very popular in the US market, and it effectively crippled that participation. Since then nearly the entire majority of light trucks sold in the US are made in the US, Canada, or Mexico, exempting them from the tariff.
Globalization has been the most effective poverty reduction program in history. The number of people in China and other places who it lifted out of poverty is enormous. Are they exploited by employers? Absolutely. But the only thing worse for them than being so exploited is not being exploited.
Given that I care about the well being of people who are not American as well as those who are, I consider this to be a massive positive.
+1
Globalization has also helped US workers as a whole, in that all workers are also consumers (and of course, millions of US jobs are directly related to trade).
The problem in the US isn't we do too much business with foreigners. Rather, the problems is too much rent-seeking and not enough redistribution. Always.
Economics evolved to serve the interests of the ruling class.
What actually happened as globalization proceeded is the reverse of what Vance said would be the process. Prices were probably kept down, as foreign governments subsidized their exports and low-wage foreign labor was used, but the good manufacturing jobs in the US were lost and US workers never got the promised well-paying "service" jobs.
Whether the process can be reversed and the good jobs brought back with tariffs is another question - probably a number of things will have to be done. But to assume that Republicans are really on the side of workers is foolish. Aside from the fact that Trump has no real grasp of the situation, all his "populistic" promises have turned out to be fake.
If 10 years ago you’d have told me Republicans would sound like rust belt Democrats from the mid 70s I’d have asked what you were smoking.
And one other thing...
I think Trump has conflated a Value Added Tax (VAT) with a tariff. Yes, I'm trying to rationalize Trump's nonsense....
That makes him even more obviously wrong because it’s even more clear that the consumer pays the VAT
You've managed to overstate Trump's coherence. He's not really talking about either a VAT or tariffs. It's random word salad.
"Trade wars are good, and easy to win." -- DJT, 3/2/2018
Doesn't that settle it?
(/snark, in case it's needed)
That sounds like the subtitle to the book "Tradewars For Dummies". A book Trump would have stopped reading after the front cover. Because he's a stable genius and knows everything about everything!
Another effect of tariffs is that they stifle innovation because protected industries have no incentive to invest in innovation. Which in the long terms leads to new jobs not being produced.
The amount of stifling depends on how vigorously domestic industries compete with each other.
Wow, great work by Kevin! Too bad this is about 30 levels above the sophistication of most punditry and, unfortunately, the talking points offered by the Democrats so far. At the convention, I didn't hear anyone say "Trump wants to impose tariffs that will raise prices for consumers and probably kill economic growth." Instead, they just say "Trump wants to raise taxes on the middle class," which sounds like a typical political talking point that will be easy for fact-checkers to rate "mostly false."
One reason that tariffs don't deliver what they are promised is that companies in protected industries don't behave the way that supporters of tariffs believe that they will. The reason that they don't produce new jobs is because those firms don't rush to capture the demand that is now unserved by foreign exporters. Instead, long experience makes it clear that they choose, instead, to raise prices as supply decreases and fatten their profit margins.
Then they are monopolies, and monopolies should be broken up.
There are good and bad manufacturing jobs just like there are good and bad service sector jobs. But good manufacturing jobs tend to be of poorer quality than good service jobs: the pay ceiling is orders of magnitude lower, and conditions are generally a lot tougher. Ever see Norma Rae?
The main reason we have fewer manufacturing jobs isn't evil foreigners but increased productivity: the US manufactures more than it ever did, but we just do so a lot more efficiently, so the number of jobs isn't the same. That's called "productivity" — I can't think of a better way to reduce US living standards than by weakening this utterly critical attribute (which is exactly what a quixotic return to the "glory" days of US factory jobs would entail).
The big problem for the US working class isn't lack of high wage jobs (America is one of the world's most expensive labor markets) but things like infrastructure* red tape, housing NIMBYism, inadequate education, excessive rent-seeking in myriad areas and (especially) a poorly designed safety net.
*Kevin has highlighted this issue many times in his posts about California high speed rail: we're plainly incapable of rolling out a vast HSR network in the areas (West Coast, Great Lakes Urban Zone, Northeast Corridor, etc) where it would make sense to do so. But imagine if we could get our act together on permitting reform! Think of how many high quality blue collar jobs that would create. Our failure to do so isn't the fault of China or India, any more than they're responsible for our high housings costs, substandard working retraining, inadequate pensions, or lack of truly universal healthcare coverage...
We're the richest country in history. It could be a paradise for all if we could enact the right policies.
The big problem for the US working class is that all the benefits of globalization have been captured by the 1%. As you pointed out...