Tariffs are a tax. They are almost always paid by consumers in the country levying the tariffs. Six years ago, then President Trump enacted tariffs on the import of Chinese goods.President Biden has kept them in place and even extended them. American consumers are paying for them in higher prices on goods. Either higher prices on the same goods produced in America at higher cost or higher costs due to the tariff itself and extra transportation costs of goods shipped from China to Mexico and then overland to the United States. Oh yeah, you probably did not know that trade between China and Mexico has gone up 60$ since the Trump tariffs. You didn't think there was suddenly a 60% increase in Mexico for iphones assembled in China did you?
Who benefits? Well, supposedly. workers making the now more expensive Chinese goods domestically. But that's not how it worked out. A 2021 study by the U.S.-China Business Council found that the real result was the loss of 245,000 American jobs. Theoretically U.S. manufacturers protected from Chinese competition would benefit. The actual result is that with a protected market, they just get fatter and lazier. That makes them uncompetitive in the export market. Ask U.S. Steel, the former juggernaut which tried, in desperation, to sell itself to Nippon Steel, a Japanese company.
Tariffs also have the inevitable consequence of inviting retaliation. China imports a lot of soybeans from the U.S. It's nearly as easy to import them from Brazil or Argentina. Instead of buying airplanes from Boeing they can buy them from Airbus or Embraer. With the added bonus that the doors won't fall off.
Another less immediate drawback to tariffs is increased hostility between nations which can lead to war. You may remember that when trade between China and the United States was burgeoning and growing every year there was little talk on the part of China of forcibly annexing Taiwan. Post-tariffs there is. When your largest trading partner becomes your third largest trading partner in a matter of a few short years, there is less incentive for efforts to emphasize peace in foreign policy and more incentive to be aggressive. Beecause, what is there to lose? From China's standpoint, the United States is militarily overextended by its support for the wars in Ukraine, Israel and the extended Middle East. They may think that now is the time to strike to bring Taiwan back into the fold.
The geopolitical lesson is that countries that trade with each other are less likely to fight with each other. But when politicians are trying to build a coalition of the economicly illiterate and the xenophobic, tariffs and trade wars can help get them elected. I'm Richard and that's this week's Report From the Fields. See you again next week.