Who Will Pay For The New Tariffs?

Posted: Mar 07, 2018 9:17 AM
Who Will Pay For The New Tariffs?

Tariffs are a tax.

And like every other tax on business, the consumer is the one that pays.

If you wouldn’t support a sales tax on steel, for the very same reason, you can not support a tariff. If you deplore the value-added tax of the European states, then you can not support tariffs.

Like too many taxes today, tariffs pick winners and losers in the market and you will be the one to pay.

While it’s true that some countries have engaged in dumping and predatory trade practices—China, for example—applying a tax to the imports from countries that don’t engage in such practices penalizes US consumers.

And it won’t solve the problem.

What exactly is the problem?

The world needs a lot less steel than it produces each year.

Production is double what it should be to satisfy demand.

“To put the magnitude of the overcapacity issue in perspective experts maintain that the world needs about 400 million tons of excess steel capacity,” says Stephen Olson, research fellow at the Hinrich Foundation, a think tank devoted to sustainable international trade. “Today, we have roughly 730 million tons. About half of that is in China, which has grown to be the world’s largest steel producer.”

If the US announced a tariff or even ban on steel from China, I’d be waving a flag in the street.

If the US stopped imports from China entirely, I’d support it with gusto.

But the US imports about $650 billion in goods from China, with a $288 billion trade deficit.

Steel from China only accounts for 2.9% of the deficit.

So, why hit our allies with a tariff, when they follow the same rules we do?

Why ask consumers to pay higher prices because the world—China-- makes too much steel?

The White House has said that the overall effect of the tariff will be negligible for consumers. If true, then I think it’s fair to ask: Will the tariff have much effect on producers?

Or will it just bring the trade war that people really should fear?

President Trump likes to talk about how the US would win any trade war because America is the one running the high trade deficit. What he doesn’t say is that you’ll be the one to pay the price in higher goods that we import from other countries, or buy at home.

You’ll have fewer choices too. Giving consumers more choices is always a better option for healthcare and for hot-rolled steel.

While it’s undoubtedly true that more Americans would have more jobs if every bit of steel we used was made in the USA, that doesn’t mean it would be great for Americans to buy every bit of steel only from the USA.

There was a time when that happened, and it did not bring us lasting prosperity.

There was a time in this country when the newscasts started with how many cars were being produced by Detroit and how much steel was being produced by US Steel, and which unions were angling for higher wages via a strike or the threat of it.

That was an angry time for our country.

And tariffs were a part of the problem for a long time. Tariffs led to corruption, influence buying and insider deals.

The next in line for a protectionist tariff will be the automakers who will argue that we need to look for the union label on every car we buy.

Tariffs are a writing of the tax code to pick winners and losers.

“He will lose as a great consumer through having to pay more for all he uses,” noted Winston Churchill in 1904 about the effect of tariffs, “he will lose as a competitor in neutral markets by not being able to compete so well with his rivals; and he will lose because people at home and abroad will not have so much money to spend on the things he makes.”

The losers will be many and the winners will be a few.

But it is certain that you will be the one to pay the price for that victory.