Study: Trump-style tariffs on all imports would cost the average U.S. household $6,000 per year
posted at 8:01 pm on May 12, 2016 by Allahpundit
Smells like globalist propaganda to me. I say we give it a shot, prove the eggheads wrong.
What’s the worst that could happen?
The economists looked at two scenarios to arrive at their calculations. First, based on statements Trump has made in the campaign, they modeled the effect of a 45 percent tariff on imports from China and Japan and a 35 percent tariff on imports from Mexico. That would cost the average American household more than $2,200 annually with those households in the lowest income brackets feeling the greatest pinch…
However, tariffs on just three countries likely would be ineffective in protecting American workers from foreign competition because importers could simply turn to other suppliers, the economists said. So the team examined a second scenario in which a Trump-proposed tariff of 45 percent is applied to imports from all countries.
“Then the results would be truly catastrophic for the poor,” the report said. “It would be as if the United States imposed a new tax of 53 percent on the lowest 10 percent income decile and a 20 percent tax on the next lowest decile. It would be the equivalent to an 11 percent flat tax on the after-tax income of U.S. workers.”
Here’s the report. The counter is obvious: Trump’s not proposing tariffs on all imports, just on imports from selected nations, most notably China. So the $6,000 worst-case scenario imagined here addresses circumstances he’s never endorsed. Right, but the counter to that is equally obvious. Once you slap a 45 percent tariff on Chinese-made goods, the rational move for U.S. companies isn’t to shift production from China to the United States. It’s to shift production from China to Mexico or Bangladesh or some other developing economy where labor costs are a pittance of what they are at home. If you’re fully committed to growing American jobs by forcing — er, I mean, encouraging — Americans to buy U.S.-made goods, you might as well go nuclear with tariffs and slap ’em on everything that comes in. Everything you buy will be much more expensive (a 30.5 price increase, per the study), but at least it’ll be American-made. Nationalism requires nothing less.
That isn’t the only study lately to sound the air-raid siren over Trump’s plans either, per Scott Lincicome of Cato. A Brandeis University economist who specializes in projections for trade deals also assumed that tariffs on one major foreign competitor would require tariffs globally of 10 percent in order to deter U.S. businesses from outsourcing to other third-world nations. Many of those countries, facing U.S. tariffs, will retaliate with tariffs of their own on American goods. Result: The trade deficit would increase by $67 billion, and potentially much, much more if the instability generated by the trade war caused the value of the dollar to rise. A different study from Moody’s Analytics, meanwhile, projected that Trump’s tariffs would drive both China and Mexico into recession. What does that mean for you? Nothing good:
Unfortunately, the United States would fall into recession, too. 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.
The job losses would be halved if China and Mexico chose not to retaliate to the tariffs of 45 percent and 35 percent, respectively. In which case U.S. growth would flatline, but the country would not fall into recession…
The Moody’s analysis projects the U.S. economy would be 4.6 percent smaller by the end of 2019 if America levies tariffs on China and Mexico and those countries respond, compared to where it would be with no tariffs. It forecasts U.S. employment would be 7 million jobs lower than it would have been, and that the unemployment rate would hit 9.5 percent in the middle of 2019. The federal budget deficit would grow to be 60 percent larger than it would have been.
If you kill demand for American goods abroad, American manufacturers will have to cope with the loss of revenue by cutting costs somewhere. Guess where.
The good news is that Trump is proving himself highly “flexible” on policy and can probably be talked out of his nuttier protectionist impulses so long as he gets to keep the flashier stuff that’s more important to his base. He knows better than anyone how significant “the wall” is to them. Give him his wall and the mammoth tariff on China can probably quietly be discarded. Still, is there any more perfect news story on the day of the big Trump/Ryan summit than a study showing how damaging a Trump-led trade war would be? Ryan, a consummate free-trader, stood up today and talked on and on about finding “common ground” with Trump on core principles. Meanwhile, here’s a reminder that they couldn’t be further apart on economic basics, with momentous consequences for the U.S. economy depending upon who wins the power struggle to come. Good luck with the new GOP, Paul.