A Recent History Of American Tariffs: Why They Have Succeeded Or Failed

Will a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports help the American steel and aluminum industries?

President Donald Trump said he thinks they will. Consequently, he imposed these tariffs on most foreign nations on March 8, a decision that takes effect on March 23 and will exempt Canada and Mexico.

“We have to protect and build our steel and aluminum industries, while at the same time showing great flexibility and cooperation toward those that are really friends of ours,” Trump said as he announced the new policy.

Trump imposed the tariffs because he has believed for decades that foreign nations have been selling their products at prices that are lower than the prices on U.S.-made products because of “unfair trade” as he wrote in a March 1 tweet. These trade practices, he believes, reduce the sales and profits of American companies and, thus, cause the companies to employ far fewer employees. Tariffs, Trump believes, have the opposite effect on prices, sales, profits, and jobs.

Executives from the steel and aluminum industries and politicians who represent a significant number of steelworkers and aluminum workers, including Democratic senators like Sherrod Brown (Ohio) and Bob Casey (Pa.), agree with Trump. On the other hand, most Republican politicians believe that the free market should decide the prices and sales of products. They also believe that tariffs hurt industries that need steel and aluminum as well as consumers. Steel tariffs, for example, can increase the cost of manufacturing and buying a car.

Economists also believe Trump’s tariffs plan will be harmful — overwhelmingly. None of the 60 economists surveyed by Reuters said the tariffs would benefit the U.S. — while about 80 percent of them said the tariffs would harm the nation and the rest of them said the tariffs would be insignificant.

Wealth Authority found the economists’ predictions very interesting, but we believe the recent history of American tariffs — whether they succeeded or failed — could be the best predictor of whether Trump’s current plan will succeed.

Consequently, we researched the recent history of American tariffs. Our findings include:

Bush’s Steel Tariffs Failed:

Wealth Authority found several analysis about the tariffs that President George W. Bush imposed on steel imports in 2002 in what appears to be the most relevant comparison to Trump’s plan. All of the analysis concluded that the 2002 plan failed. In fact, the Politico article is entitled “Why steel tariffs failed when Bush was president.”

Tariffs Often Cost Jobs:

Several analysis concluded that recent U.S. tariffs cost the U.S. economy a lot of jobs. For example, the Bush steel tariffs increased employment in the steel industry by about 3,500 workers according to a study cited in the Politico article, but another study in the same article said the U.S. economy lost about 200,000 jobs because of the tariffs. The job losses, which exceeded the total number of steel industry employees, came in steel-using industries like the auto parts industry that “left the U.S. so they could make their parts with cheaper steel.”

Targeted Tariffs Don’t Work:

In response to complaints by unions, President Barack Obama imposed 25 to 35 percent tariffs on tires imported from China in 2009. While the tariffs caused a 28 percent decline in Chinese tire imports, the value of tire imports from Indonesia, South Korea, and Thailand doubled. The number of tires made in the U.S. did increase in 2010, but economic analysts attributed that to the economy because the number of imported tires rose more. In addition, employment in the U.S. tire industry continued to decline.

Tariffs Can Cause Complacency:

The U.S. auto industry was “insulated” from competition for many years by tariffs on autos imported from abroad, reports The New York Times article “What History Has to Say About the ‘Winners’ in Trade Wars.” The lack of competition caused a decades-long decline in an industry that “failed to modernize, improve quality or reduce costs.” During the same timeframe, the steel industry used the protection of the tariffs to “raise prices, fatten profits, pay their executives more and avoid automating and reducing costs,” a professor told The New York Times.

Tariffs Can Cause Trade Wars:

Many economists blame a 1930 American law, the Smoot-Hawley Tariff Act, for dramatically making The Great Depression worse, or even starting it. The law imposed tariffs on 20,000 imported goods, many nations retaliated with tariffs, and U.S. exports plunged 61 percent from 1929 to 1933. More recently, the “chicken wars” of the early 1960s caused American and European consumers to pay higher prices for fewer products. France and Germany started the war by imposing tariffs on American chicken and the U.S. retaliated with tariffs on many goods.

Here is how the Los Angeles Times summarizes the history of recent American tariffs — “Over the past 35 years, the U.S. has imposed duties and import quotas on foreign-made electronics, socks, steel, cars and solar panels, among many other goods. Sometimes such tariffs have brought relief for a particular domestic industry, but more often, they have had little lasting effect in boosting production and employment at home because the duties came too late, were circumvented or were made largely irrelevant as imports shifted to other foreign countries.”

After Trump announced he would impose tariffs on most steel and aluminum imports, a pro-free trade group called the Trade Partnership issued a report that estimated the tariffs would cost the U.S. economy about 146,000 jobs with the steel and aluminum industry gaining about 33,000 jobs while the rest of the economy lost 179,000 jobs.

The report could be wrong, of course, but the recent history of U.S. tariffs suggests that the Trade Partnership’s conclusion that tariffs will harm more industries than they help could be correct.

Regards,

Ethan Warrick
Editor
Wealth Authority


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