U.S. Trade Representative Katherine Tai said the proper use of tariffs as a trade tool is good for the middle class, especially those that work in the industrial sectors of the economy. No tariffs, on the other hand, may lower costs of goods sold. But they come with other risks, including the socio-economic problems associated with deindustrialization.
“One of the things we need to take into account is that things that look like they are low priced and artificially low priced and have brought with them a lot of larger costs,” she said on MSNBC’s news show hosted by Ali Velshi.
.@POTUS + @VP know that trickle down just doesn’t work. When we use tariffs properly trade can be part of a strategy for growing the middle class and empowering working people everywhere. pic.twitter.com/JqlF3wWCiZ
For Tai, those costs are sometimes incalculable, but clearly visible. They include the “larger costs to America’s industrial strength, to our manufacturing economy and to what our future might look like,” she said speaking on behalf of the Biden administration’s May 14th decision to increase tariffs on semiconductors, solar goods, EVs and EV batteries made in China.
The U.S. was first to enact policies designed to protect what’s left of domestic industry, and used legislation to promote new ones. This was the case for both the Section 301 China tariffs, the Section 232 steel and aluminum global tariffs, and the Section 201 solar safeguard tariffs. All of those were kept and extended from Trump to Biden and beyond. The Inflation Reduction Act (IRA) and the CHIPS Act were designed to incentivize production of solar, wind, EVs and long life batteries, along with all types of semiconductors here in the U.S. In fact, Biden’s May 14 tariffs on China made chips, solar and EV-related items was in large part due to protect those investments being made under the IRA and CHIPS.
Last month, former European Central Bank president Mario Draghi warned that Europe was deindustrializing. There are a number of reasons for this, he cited, including high energy costs. But also competition from China (a generally closed economy) and the U.S., which is attracting investments in clean energy and advanced technology from Europe.
After Years of Destruction, Manufacturing Employment Rising
Manufacturing employment took a huge hit during the pandemic but there has been a steady increase in the industrial labor force since the Section 301 tariffs were enacted in 2018.
Since the passage of the IRA, close to 200 new clean technology manufacturing facilities have been announced—representing $88 billion in investment—which are forecast to create over 75,000 new jobs. While this has nothing to do with tariffs, it is clear that some sort of trade tool – either import quotas, tariffs, or outright restrictions – will be necessary to maintain corporate investor interests in building here under IRA and CHIPS laws rather than simply import it all.
Manufacturing jobs as a percentage of all employment, and as a growth segment of the economy, peaked around 1980. It rose steadily during World War II, then in the post-war period that gave rise to the American middle class. As Europe and Japan were rebuilding, all the new innovations were designed and made here.
Those numbers fell during the rise of Japan’s auto industry, radio and television equipment. Then completely collapsed once China joined the World Trade Organization in 2001 to become America’s new industrial heartland. Tariffs and other tax incentives have stopped the blood letting.
Leadership from both parties agree that a strong industrial base is important for the growth of the middle class. People working in durable goods production – such as automotive or steel – earn more on average than those working in non-managerial positions in the private sector, according to a 2023 report by the National Institutes of Standards and Technology.
Over the last month, numerous economic pundits have gone on the offensive against Trump’s proposed 10% universal tariffs, something Harris equates to a “sales tax”, citing the work of the American Action Forum. The Forum, run by Bush economics advisor Douglas Holtz-Eakin, said that Trump’s tariffs would equate to $4,000 a year in extra costs for middle class families, a mathematical equation harder to get right than landing a rover on the moon.
Trump has argued that higher tariffs will be used as a revenue generator to lower the country’s $2 trillion fiscal deficit.
One driver of our budget deficit that is rarely mentioned is it is in large part a consumer stimulus to offset our persistent trade deficit which reduces growth. Excessive imports siphon demand for goods and services away from American producers and drive the government to run a budget deficit to cover that gap. Since the year 2000, our trade deficit has continued at around 3% of gross domestic product. That’s 3% of national spending that is going not on American goods and services but on foreign goods and services instead. This shortfall in demand in the U.S. produces a recession-like effect because it means that the dollars earned by Americans are not being re-spent into the U.S. economy to employ people here but instead go to foreign producers.
Smart tariffs, as Tai describes the targeted sectoral tariffs seemingly preferred by Biden, can fend off job losses due to imports.
For example, steel mills directly employed 78,900 workers in 2021, representing less than 1% of the nation’s 12.3 million manufacturing jobs. But steel mill employment declined 58% between 1990 and 2021, with almost all of it happening before the pandemic and before the Section 232 tariffs in 2018. The government projects employment in steel mills to rise between now and 2030, according to a 2022 report by the Congressional Research Service. Although the increase is small, the number would undoubtedly go the other way as history has shown us if not for tariffs and the Buy American policies in the IRA and infrastructure laws.
Steel mill workers earned an average annual wage of $88,325 in 2020, higher than the annual average of $73,397 for all manufacturing.
Companies that manufactured goods are almost always going to go where they can produce at the lowest cost possible. Labor rates throughout Asia and free trade partner Mexico are incompatible with the U.S. The China tariffs have largely succeeded at moving supply chains out of mainland China, with some production increases occurring in the U.S., said a March 2023 study by the International Trade Commission. But most of the shift is occurring in Southeast Asia and Mexico. Tariffs have remapped supply chains, which was one of the goals of the Section 301 tariffs. Moving production to the United States will take more than just tariffs, and will likely require tax incentive programs as seen under the Biden administration, and a combination of quotas or other restrictions, especially on product lines receiving government support under the IRA and CHIPS law.
Labor costs adjusted for productivity rose by 21% in the U.S. from 2018 through 2022, the first year of the Section 301 tariffs. They also rose by 24% in China, 22% in Mexico and 18% in India. Mexico is the most competitive near-shore option for the U.S. based on labor and the free trade deal, something that could pose a problem for any president’s industrialization plans.
Tariffs may be scaring the majority of economic pundits, but either the U.S. has an industrial base in a global economy or it does not. Barring destruction of U.S. wages to compete with low-wage industrial powers in Mexico and Asia, tariffs are going to remain an indispensable tool. People may only differ on how to use them.
“I don’t believe that American consumers will see any meaningful increase in (consumer) prices. It’s very important to protect our workers and our firms in these strategic sectors from the kind of dumping that results when China develops massive overcapacity.”
– Secretary Yellen in an interview with PBS NewsHour about Biden’s decision to extend the Section 301 tariffs and add new ones on Chinese made solar, microchips and EVs, May 14, 2024
Some economists and politicians have argued that the implementation of tariffs is a regressive tax policy, as in it would benefit the rich more than the poor. But this is a partial view based on simplistic assumptions. Tariffs generate revenue for the government and that revenue can be used in numerous ways to provide benefits to households, or reduce government financial burdens.
CPA’s economic analysis shows that a policy of 10% universal tariffs could stimulate the U.S. economy to grow by nearly 3%, create nearly 3 million additional jobs, and raise real household incomes by close to 6%.
From the conclusion of that report:
A combined tariff/tax cut policy is likely to stimulate the U.S. economy, generating greater production, more employment, and more investment in domestic industries, with small and perhaps imperceptible costs. Our main concern with the policy is that 10% tariffs may not be sufficient to produce a significant stimulus, in light of other economic headwinds in the U.S., in particular the 20%-25%estimated overvaluation of the U.S. dollar, the large U.S. trade deficit, and the oligopolistic nature of U.S. industry, which will require large, sustained policy changes to reinforce the message to multinational business that the U.S. government intends to fight to rebuild American industry.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
Katherine Tai Says Proper Use of Tariffs a Good Way to Stop Deindustrialization
U.S. Trade Representative Katherine Tai said the proper use of tariffs as a trade tool is good for the middle class, especially those that work in the industrial sectors of the economy. No tariffs, on the other hand, may lower costs of goods sold. But they come with other risks, including the socio-economic problems associated with deindustrialization.
“One of the things we need to take into account is that things that look like they are low priced and artificially low priced and have brought with them a lot of larger costs,” she said on MSNBC’s news show hosted by Ali Velshi.
For Tai, those costs are sometimes incalculable, but clearly visible. They include the “larger costs to America’s industrial strength, to our manufacturing economy and to what our future might look like,” she said speaking on behalf of the Biden administration’s May 14th decision to increase tariffs on semiconductors, solar goods, EVs and EV batteries made in China.
The U.S. was first to enact policies designed to protect what’s left of domestic industry, and used legislation to promote new ones. This was the case for both the Section 301 China tariffs, the Section 232 steel and aluminum global tariffs, and the Section 201 solar safeguard tariffs. All of those were kept and extended from Trump to Biden and beyond. The Inflation Reduction Act (IRA) and the CHIPS Act were designed to incentivize production of solar, wind, EVs and long life batteries, along with all types of semiconductors here in the U.S. In fact, Biden’s May 14 tariffs on China made chips, solar and EV-related items was in large part due to protect those investments being made under the IRA and CHIPS.
Last month, former European Central Bank president Mario Draghi warned that Europe was deindustrializing. There are a number of reasons for this, he cited, including high energy costs. But also competition from China (a generally closed economy) and the U.S., which is attracting investments in clean energy and advanced technology from Europe.
Read about Draghi’s warning to the EU here.
After Years of Destruction, Manufacturing Employment Rising
Manufacturing employment took a huge hit during the pandemic but there has been a steady increase in the industrial labor force since the Section 301 tariffs were enacted in 2018.
Since the passage of the IRA, close to 200 new clean technology manufacturing facilities have been announced—representing $88 billion in investment—which are forecast to create over 75,000 new jobs. While this has nothing to do with tariffs, it is clear that some sort of trade tool – either import quotas, tariffs, or outright restrictions – will be necessary to maintain corporate investor interests in building here under IRA and CHIPS laws rather than simply import it all.
Manufacturing jobs as a percentage of all employment, and as a growth segment of the economy, peaked around 1980. It rose steadily during World War II, then in the post-war period that gave rise to the American middle class. As Europe and Japan were rebuilding, all the new innovations were designed and made here.
Those numbers fell during the rise of Japan’s auto industry, radio and television equipment. Then completely collapsed once China joined the World Trade Organization in 2001 to become America’s new industrial heartland. Tariffs and other tax incentives have stopped the blood letting.
Leadership from both parties agree that a strong industrial base is important for the growth of the middle class. People working in durable goods production – such as automotive or steel – earn more on average than those working in non-managerial positions in the private sector, according to a 2023 report by the National Institutes of Standards and Technology.
Over the last month, numerous economic pundits have gone on the offensive against Trump’s proposed 10% universal tariffs, something Harris equates to a “sales tax”, citing the work of the American Action Forum. The Forum, run by Bush economics advisor Douglas Holtz-Eakin, said that Trump’s tariffs would equate to $4,000 a year in extra costs for middle class families, a mathematical equation harder to get right than landing a rover on the moon.
Trump has argued that higher tariffs will be used as a revenue generator to lower the country’s $2 trillion fiscal deficit.
One driver of our budget deficit that is rarely mentioned is it is in large part a consumer stimulus to offset our persistent trade deficit which reduces growth. Excessive imports siphon demand for goods and services away from American producers and drive the government to run a budget deficit to cover that gap. Since the year 2000, our trade deficit has continued at around 3% of gross domestic product. That’s 3% of national spending that is going not on American goods and services but on foreign goods and services instead. This shortfall in demand in the U.S. produces a recession-like effect because it means that the dollars earned by Americans are not being re-spent into the U.S. economy to employ people here but instead go to foreign producers.
– “How Budget Deficits Grow Due to Trade Deficits” by Jeff Ferry, chief economist, CPA, Aug. 8, 2024
Smart tariffs, as Tai describes the targeted sectoral tariffs seemingly preferred by Biden, can fend off job losses due to imports.
For example, steel mills directly employed 78,900 workers in 2021, representing less than 1% of the nation’s 12.3 million manufacturing jobs. But steel mill employment declined 58% between 1990 and 2021, with almost all of it happening before the pandemic and before the Section 232 tariffs in 2018. The government projects employment in steel mills to rise between now and 2030, according to a 2022 report by the Congressional Research Service. Although the increase is small, the number would undoubtedly go the other way as history has shown us if not for tariffs and the Buy American policies in the IRA and infrastructure laws.
Steel mill workers earned an average annual wage of $88,325 in 2020, higher than the annual average of $73,397 for all manufacturing.
Companies that manufactured goods are almost always going to go where they can produce at the lowest cost possible. Labor rates throughout Asia and free trade partner Mexico are incompatible with the U.S. The China tariffs have largely succeeded at moving supply chains out of mainland China, with some production increases occurring in the U.S., said a March 2023 study by the International Trade Commission. But most of the shift is occurring in Southeast Asia and Mexico. Tariffs have remapped supply chains, which was one of the goals of the Section 301 tariffs. Moving production to the United States will take more than just tariffs, and will likely require tax incentive programs as seen under the Biden administration, and a combination of quotas or other restrictions, especially on product lines receiving government support under the IRA and CHIPS law.
Labor costs adjusted for productivity rose by 21% in the U.S. from 2018 through 2022, the first year of the Section 301 tariffs. They also rose by 24% in China, 22% in Mexico and 18% in India. Mexico is the most competitive near-shore option for the U.S. based on labor and the free trade deal, something that could pose a problem for any president’s industrialization plans.
Tariffs may be scaring the majority of economic pundits, but either the U.S. has an industrial base in a global economy or it does not. Barring destruction of U.S. wages to compete with low-wage industrial powers in Mexico and Asia, tariffs are going to remain an indispensable tool. People may only differ on how to use them.
“I don’t believe that American consumers will see any meaningful increase in (consumer) prices. It’s very important to protect our workers and our firms in these strategic sectors from the kind of dumping that results when China develops massive overcapacity.”
– Secretary Yellen in an interview with PBS NewsHour about Biden’s decision to extend the Section 301 tariffs and add new ones on Chinese made solar, microchips and EVs, May 14, 2024
Some economists and politicians have argued that the implementation of tariffs is a regressive tax policy, as in it would benefit the rich more than the poor. But this is a partial view based on simplistic assumptions. Tariffs generate revenue for the government and that revenue can be used in numerous ways to provide benefits to households, or reduce government financial burdens.
CPA’s economic analysis shows that a policy of 10% universal tariffs could stimulate the U.S. economy to grow by nearly 3%, create nearly 3 million additional jobs, and raise real household incomes by close to 6%.
From the conclusion of that report:
A combined tariff/tax cut policy is likely to stimulate the U.S. economy, generating greater production, more employment, and more investment in domestic industries, with small and perhaps imperceptible costs. Our main concern with the policy is that 10% tariffs may not be sufficient to produce a significant stimulus, in light of other economic headwinds in the U.S., in particular the 20%-25% estimated overvaluation of the U.S. dollar, the large U.S. trade deficit, and the oligopolistic nature of U.S. industry, which will require large, sustained policy changes to reinforce the message to multinational business that the U.S. government intends to fight to rebuild American industry.
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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