It’s Time We Had a Talk About Tariffs

How have the president's protectionist measures performed the last two-plus years?

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Dear Capitolizers,

Last week, President Trump was back in Ohio campaigning and telling incredible stories about tariffs (as one does). This time, he bragged to the audience that his 2018 washing machine tariffs pushed Samsung and LG to build appliance factories in the United States—factories they’d actually announced in early 2017 (details, shmetails). Trumpian exaggerations aside, the president’s love of tariffs and recent events—including the washing machine brags, his on-again-off-again (again) tariffs on Canadian aluminum, and, of course, the omnipresent China situation—provide us with a good reason to look how the president’s tariffs have performed over the last two-plus years, as well as the many reasons he should never have imposed them in the first place.

So let’s get right to it.

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  1. D B

    Thanks Scott and commenters! I've learned (or re-learned from Econ 101) a lot from both the article and the refreshingly civil comments.

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  2. 4th

    This article has convinced me to subscribe, for a long time. These types of articles (or at least snippets of them) should be included in the free version emails as I wasn't aware that economic and trade analysis was part of the offering here.

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    Earl King

    I didn't read anything about Chinese companies not reducing prices not anything about devaluation of currency both of which are strategies to counter tariffs. I would never expect Mr. Lincicome to like Tariffs....in fact they are pretty much a negative....but and this is a big BUT. I have yet to see an alternative presented...Nobody has offered an alternative to the baseball bat across the skull tariffs represent. 1) Chinese currency manipulation. 2) Chinese government subsidies in industries they want to monopolize 3) Theft of intellectual property 4) Forced technology transfers...probably other I haven't thought of....I would at least expect an offering of alternatives....Trump is first and only President to try and do something....I cannot believe Mr. Lincicome's answer is simply to let China continue to do the above....but then again since he didn't offer up any answers maybe it is.....

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    The Bell Tower

    This is a fantastic article condemning the current approach. It would be great to see what an alternative approach should look like. Forget saving dying industries and jobs but competing with bad actors like China - and allowing American companies to profit off such exploitation - is something America should pursue.

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  5. Christopher Jones

    This article is tarriffic Scott.

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    Bill Nelson

    The only solution is for Congress to find a way to become part of the process. And I’m not sure they would be any better.

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    This comment has been deleted

  8. Brett

    Hey, Scott. Great work again. I appreciate that you make this stuff accessible to those of us who are not trade experts. I suspect that part of the problem with partisan politics these days is that far too many people have more opinions than knowledge on economic issues. They don’t even know what they don’t know.

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    Steven Gooch

    I have to admit, it's been 30 years since I took economics, but a slight bone to pick with your first chart. I always thought tariffs had the effect of shifting the supply curve up and to the left, thus resulting in a higher market clearing price and fewer units being sold. So in your case, fewer people buying washing machines.

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  10. Token Liberal

    Ok, Scott, so tariffs are bad. Meanwhile, the middle class, especially in industrial areas, has been getting walloped for 40 years. What, if anything, would you do about this?

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    1. Very Old Grumpy Guy

      This is a question for Oren Cass and The people at American Compass. They are trying to marry "Conservatism" with government managed outcomes in the labor market. I really want to see how the parties re-align when unions are endorsing the Republicans for their stance on tariffs.

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    2. Richard Fulmer

      America’s middle class "shrank" because many of its members moved into the upper-middle and wealthy classes. As economist Robert J. Samuelson reported in The Washington Post, between 1979 and 2014, the poor dropped to 19.8% of the population from 23.4%, the lower middle class dropped to 17.1% from 23.9%, and the middle class dropped to 32.0% from 38.8%. During the same years, the upper middle class rose to 29.4% of the population from 12.9% and the wealthy class rose to 1.8% from 0.1%.

      Reports of wage stagnation are based on very misleading statistics. First, many of the studies were based on “households.” The problem is that “household” is a moving yardstick because the number of people in the average American household has been falling. As young Americans became more affluent, they moved out of their parents’ homes and started households of their own.

      So, for example, if a single household includes two workers each of whom earns $20,000 a year, the combined household income is $40,000. If they each receive a $10,000 raise and can now afford to move into separate apartments, their combined wages total $60,000, but the average household income drops to $30,000.

      Second, reports of income stagnation have excluded benefits, such as health insurance and matching 401k contributions, from the studies. Correcting for the errors, wages – far from stagnating – have actually grown by over 50% since the seventies.

      Third, reports showing wage stagnation are looking at income groups and not at individuals. People constantly move in and out of those groups. Studies that follow individuals over time find a very different picture. For example, a study by the Federal Reserve, based on tax data, followed thousands of people who were 35 – 40 years old in 1987 and tracked their incomes over the next 20 years. Here are the numbers:

      Class___________Income Gain
      Poor __________________100%
      Lower Middle__________42%
      Middle_________________27%
      Upper Middle__________10%
      Wealthy________________-5%

      The poor as a group will likely continue to show little progress while there continues to be a huge number of immigrants pouring into the U.S. with little more than the clothes on their backs. But someone who crosses the border today is unlikely to still be in poverty ten years from now. That’s why poor people keep crossing the border.

      Finally, statistics based on households overstate the difference between rich and poor. According to Thomas Sowell’s 2012 book, Intellectuals and Society, there are 39 million people living in the bottom 20% of households, and 64 million in the top 20%. In other words, there are far more wage earners living in the top 20% of households than in the bottom 20%.

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      1. Token Liberal

        So we can just tell everyone in Youngstown, Cleveland, Detroit and more, 'Who are you going to believe, tbis, or your own lying eyes?'

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          Anony Moose

          Token, as a counterpoint, look at Pittsburgh. It’s an ex-steel town that is evolving to become a tech hub. It has its issues as well but they are trying to change with the times. There are also efforts in the Youngstown area to pivot to tech as well.

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          1. Token Liberal

            True. I may have been too cute. Still, if you are not college educated or trained in some other skill, you are in for a hard go. Unfortunately, that is a lot of people, many of whom had a chance at a middle class life in the past, and today, not so much.

            I recognize that in the aggregate, Scott is correct. Unfortunately, the aggregate includes millions of people who who have, and continue, to lose out.

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        2. Richard Fulmer

          Those areas have been declining for a long time - largely because the city governments and the trade unions saw local industries as milk cows that could be tapped forever, reasoning that moving the factories would be too expensive. That's true until it's not.

          Socialism depends upon a cow that can be milked forever. It collapses when the cow either dies or bolts.

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          1. Mary Stine

            Ha! I LOVE this analogy and my grandfather, a well-educated farmer who subscribed to and read Kiplinger's, would love it too.

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      2. Avatar photocircle-angle-nib
        Scott Lincicome vertical-nib Author

        Also: https://www.cato.org/blog/some-reasons-optimism-regarding-hollowing-out-americas-middle-class?queryID=b2feeac0ce6a4c8196495eae8f9ceb3f

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