Sorry, Democrats (and Free Trade Republicans): Trump’s Tariffs Worked

Trump's Tariffs Worked

For those who roam within credentialed economic circles and discuss markets with hedge fund managers at the Harvard Club, tariffs are sacrilegious. Speak kindly of them and you’re a free market heretic. It’s practically un-American.

Sadly for them, tariffs that began in 2018 have not destroyed the U.S. economy. The stock market did not crash. Tariffs weren’t the cause of inflation either. And many manufacturing industries from kitchen cabinets in Alabama to solar in Ohio are thriving because of them. Others, like automobiles, may soon need them.

The most famous spokesman for tariffs is Robert Lighthizer, ex-U.S. Trade Representative (USTR) under Donald “Tariff Man” Trump. They made tariffs a household word in 2018 when they imposed Section 301 tariffs on around $250 billion worth of China imports. Lighthizer praised tariffs in The Economist—which is like going to Vatican City and yelling through a bull horn that Jesus is fake. Nowadays, whenever Lighthizer writes in defense of tariffs in the Wall Street Journal, he is met with staunch rebuttal. Then he rebuts the rebuttal in a letter to the editor, then the editorial board rebuts his letter in an op-ed.

We get it. One-worlders hate tariffs, even though we have the lowest WTO tariff rate out of every country at just 3.4 percent. It’s lower than business friendly Singapore, lower than the European Union, and lower than the United Kingdom, according to the World Bank‘s World Tariff Profiles 2023.

Yet the Biden administration has by and large held strong to the Trump doctrine on tariffs. Biden’s USTR Katherine Tai told the Aspen Security Forum that tariffs were a “tool in the trade diplomacy toolkit.” “The decisions you make on international economic policy impacts your domestic economy,” Tai said. In 2022, she called a Peterson Institute study on how raging inflation at the time could be curtailed by cutting the China tariffs “something between fiction and an interesting academic exercise.”

She’s right: Tariffs were never the source of our inflation problem.

The big tariff increases took effect in early 2018 and early 2019—well before inflation accelerated in March 2021. In 2023, the Federal Reserve Bank of San Francisco found that stimulus checks and pandemic lockdowns that disrupted Asian supply chains and drove up the price of maritime shipping were the main drivers of inflation.

Tariffs led to reshoring and investment in certain industries, an International Trade Commission report said in March 2023.

Steel tariffs enacted in 2018 led to more investment, new high-tech steel mills, and thousands more jobs. On average, the big four U.S. steel companies pay six-figure salaries to workers, so growing steel companies increase incomes and opportunities for the working class, which has suffered from 30 years of factory closures.

The 2018 washing machine tariffs led two Korean manufacturers, Samsung and LG, to open manufacturing plants in the U.S.—one in Tennessee and the other in South Carolina. They employ about 1,000 people each, creating jobs and contributing to local prosperity outside of crowded and expensive urban areas.

In both cases, prices rose briefly but then settled back to pre-tariff levels due to competition.

In case after case, it has become clear that tariffs’ impact on prices is transient and short-lived.

Other examples include generator manufacturer Generac. They moved the production of home generators from China to South Carolina in 2021, hiring 750 workers. GE Appliance (today owned by Chinese multinational Haier) moved the production of four-door refrigerators from China to Kentucky, hiring 245 workers. Furniture maker Williams Sonoma expanded its Tupelo, Mississippi facility with the creation of 350 new jobs to make furniture once made in China. Between 2017 and 2023, Williams Sonoma’s profit went from $309 million to $950 million.

This month, Treasury Secretary JanetYellen cautiously admitted that U.S. electric vehicles might need tariffs if Washington thinks we should have an automobile industry.

In a recent speech, Trump said we should put 100 percent tariffs on Chinese cars coming in from Mexico. That wasn’t his idea. Senator Josh Hawley (R-MO) proposed this in a bill in February. It came after He Xiaopeng, CEO of XPeng Motors, said that Western EV markets will face a “bloodbath” from China EVs. (Yes, this word has become quite popular.)

If you are of the mind that U.S. workers cannot possibly compete with low-cost labor, weaker environmental regulations, and much weaker currencies, then tariffs are necessary. Otherwise, you might get innovation in new American products, but the products will be made abroad and American workers won’t get the jobs. Besides, the Chinese can innovate and make.

New Trump proposals like the 60 percent tariff on all imports from China might not work, but the track record of the other tariffs mentioned are solid.

The goal of any tariff policy, which is used the world over, is to maintain the strength of valuable industries and enable them to change and grow. It’s not easy. But economists are recognizing that tariffs are essential in a world of large wage differences, environmental arbitrage, and where trade surplus nations like China are willing to do whatever it takes to keep full employment and maintain market share in manufactured goods it has no intention to consume at home.

Journalists and multinational executives are slower to acknowledge this change in the world, but their readers and workers see it, feel it.

Tariffs, quotas and trade enforcement, are key tools Washington must use if it wants to signal to American industry that they can strive and grow here long term.



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