The Wall Street Journal has started 2024 bemoaning tariffs. They are for losers, the WSJ Inside View columnist Andy Kessler wrote in December, ending 2023 with a taste of what is expected to come this year, an election year.
The Biden administration surprised many with keeping the Trump-era trade tariffs, which the WSJ later dubbed the Biden-Trump tariffs as if to smear the President. With Trump the presumptive Republican nominee saying he wants 10% tariffs across the board, for all countries, (the WSJ hates this idea and made everyone know about it in August) and Biden disappointing those who wanted a return to pre-2018 commerce, the heat is on to make sure that if Biden is re-elected, he lets the China tariffs retire along with him in his final years in office.
On Jan. 4, the editorial board wrote that former USTR Robert Lighthizer’s China tariffs were “flawed” and that the trade deficit was a “macroeconomic necessity.” This month has seen either the editorial board, guest opinion writers, or staff columnists saying tariffs lead to inflation, and are generally bad trade policy.
The paper recently published op-eds on two tariffs in particular – washing machines, and the Section 232 steel and aluminum tariffs. If it was up to the editorial board of the WSJ, the U.S., the largest consumer of washing machines and dryers, would not make a single one. For steel, despite the fact that the U.S. does not have a single steel company in the top 15, it might be just as well if we had none at all and just imported steel sheets from Asia – where manufactured goods will always be priced lower thanks to labor and much weaker currencies, let alone incomparable environmental regulations. Steel in the U.S. is thriving because of those tariffs. Many in the government still consider steel a national security issue.
CPA picked at the Journal’s critique of washing machine tariffs on Jan 16. Chief economist Jeff Ferry pointed out the sleight of hand used by people like those writing op-eds for the WSJ – any window of time can show prices rising immediately following the announcement of tariffs. But give it a few months, and prices fall.
Washing machine tariffs come out “clean and sparkling.”
“Tariff opponents continue to repeat the falsehood that the tariffs raised washing machine prices. But washing machines fit a pattern we’ve seen with many of the 2018-2019 tariffs: After a brief price surge, consumer prices of the tariffed products fall, and tariffs have no noticeable effect on those prices afterwards. Large washing machine importers, including LG Electronics and Samsung, initially opposed any U.S. import restrictions. However, once the tariffs were in place, they quickly changed their tune.”
– Washing Machine Tariffs Come Out Clean, Sparking for U.S. Manufacturers, by Jeff Ferry, Industry Week magazine, Jan. 16, 2024
In early 2018, washing machine prices shot up briefly as the market, fearing high prices and potential shortages because of the imposition of tariffs ranging from 20% to 50%, sought to build up inventories. Between January 2018 and June, the Bureau of Labor Statistics’ price index for laundry equipment rose by 12.4%. Within a year, that pricing index fell by 10.7%, until it was at almost the same level as it was pre-tariff.
Tariffs play a minor role in price movements. They do add to the cost of imported manufactured goods, to say otherwise would be amateurish. But prices charged to consumers are determined by many factors and tariffs tend not to be high on the list, Ferry wrote in a CPA report this month. In an oligopolistic, branded-goods industry like residential washers, where there are only a handful of competitors in the mass market, hitting sales targets and increasing market share tend to be more important than short-term profitability. Another critical objective is maintaining the loyalty of the vital channel to the consumer, which includes large retailers like Home Depot. Winning floor space at Home Depot, and maintaining consumer loyalty, can be badly disrupted by a sudden price increase, whether it can be blamed on tariffs or any other external factor.
Steel and aluminum tariffs “shrink production.”
On Jan. 17, the WSJ went after steel and aluminum tariffs. This time it was an op-ed by a duo of guest writers, one of which was from the American Enterprise Institute, long seen as a bastion of free trade. They said raising import costs means higher costs for producers, lower demand, and therefore shrinks production.
All four of the country’s top steel producers, Nucor U.S. Steel, Steel Dynamics, and Cleveland Cliffs, have been investing and expanding since the Section 232 tariffs began in March 2018. A lot has changed since then, with tariffs being removed on some countries and replaced by a tariff-rate quote system instead, but on balance, the steel producers here have done well. Things were looking bad prior to the tariffs.
Commerce did a study in 2017 that showed imports of steel were four times that of U.S. exports and that import penetration had soaked up over a third of the market. This led to the near destruction of the domestic steel industry.
A March 2023 report by the International Trade Commission (ITC) said the following:
Prices of steel have fluctuated greatly, rising immediately after the tariffs. This chart from the Bureau of Labor Statistics tells the story better than anything the WSJ could put together on stell prices and tariffs over time.
The public policy debacle surrounding Covid in China disrupted shipping and tweaked supply and demand, leading to price spikes that dwarfed that of the early days of the tariffs. By 2019, witht a year of tariffs in place, prices were already falling.
Section 201 solar safeguards have not killed deployment or sent prices sky high.
In 2018, the U.S. imposed Section 201 solar safeguard tariffs on imported solar cells and panels. Only utility grade double sided solar panels were exempt. Biden kept those tariffs in place in his first year in office, extending them for another four years.
Solar importers sounded the WSJ – the tariffs were going to ruin deployment and hurt Biden’s green agenda.
Residential solar installments increased 30 percent in 2023 compared to 2022, growing by an additional 1.6 gigawatts. The residential market is expected to add 36 gigawatts of solar over the next five years, according to the Solar Energy Industry Association, the one group that has beat the drum loudest on solar tariffs hurting deployment. It has done nothing of the sort, unless we are to speculate that with zero tariffs, residential installments would have grown by 35 percent or more last year instead.
Utility-scale solar in the U.S. rose in the third quarter of 2023 versus the same period a year ago, with developers connecting 4.1 GW of capacity to the grid, a 107% increase from the same quarter last year, according to a report from S&P Global Market Intelligence.
Solar importers said tariffs would lead to solar inflation. It has not.
Prices per kilowatt hour for solar panels are in decline since 2018, according to the International Renewable Energy Association.
“For most consumer product companies, setting consumer prices is a complex issue, involving pricing compared to competitors, and, be it a car, a washing machine, a phone, or something else, pricing your product so it can build popularity over a period of years,” said Ferry. “So the impact of tariffs on prices is usually diluted by all these considerations and ends up being quite small. But economists and politicians and some of our more pompous newspapers typically whip out a first-year economics model which says prices immediately reflect all costs throughout the supply chain. That allows them to exaggerate the impact of tariffs on prices. They’ve been wrong every time. As we write today, Michael Strain of AEI is at the capital of global pomposity, also known as Davos, telling the audience that tariffs raised prices, when in fact in 2019, the period when Trump imposed the largest tariff increase in the U.S. since 1930, the consumer price index fell to 1.8%.”
The March 2023 ITC report said that their model suggests prices on tariffed good go up between 10 percent to 20 percent of the value of the tariff, so a 10 percent of the tariff would see a one percent price increase on average in the early days of the tariff.
“Solar modules have been hit with a variety of tariffs, yet the price keeps going down. THe fact is that Chinese overproduction has a greater impact on global prices than any tariffs,” said Ferry. “Meanwhile, the Inflation Reduction Act is leading to more investment to make solar cells and modules here; this is helping make the case for local production so we are not going to be reliant on foreigners for solar energy,” Ferry said.
Prices of goods majority made in China also fall fast because Beijing and provincial governments, often acting on their own, will provide incentives to companies to keep producing beyond demand. More supply of a good can deflate prices.
“Setting a price in any market is a complex process,” Ferry said. “There are a lot of moving parts. And because tariffs are politicized in an election year, we will keep hearing about how bad they are by those who want them removed.”
Americans who are not keyed in on tariff and trade policy all know prices rose to near record highs in 2021-22. At one point, the rolling 12 month inflation rate was nearly 9%. Some items, though, rose even more. One of them that even President Biden had noted was beef.
Beef prices didn’t rise because of tariffs. There are no tariffs on beef.
Prices go up sometimes. It’s not because of Trump or Biden’s tariff policy.
The WSJ knows that prices rise for a variety of reasons, the least of them being tariffs as recent examples of key tariffed items have shown.
On Jan. 18, the WSJ reported about prices were rising this year on a whopping 775 drugs, going up between 4 percent and 10 percent, beating current inflation of 3.5 percent. Drugs are not tariffed, including on patent drugs that are either made in the United States or imported from Europe.
Inflation is not the fault of tariffs.
The National Bureau of Economic Research (NBER) said in September that “the rise in the inflation rate has been attributed to many factors. The U.S. response to the COVID-19 pandemic included a series of federal initiatives, notably the CARES Act and the American Rescue Plan, which collectively authorized roughly $5 trillion in government spending.” These two programs contributed to strong consumer and business demand, leading to higher prices. The NBER said supply chain disruptions also caused inflation in 2021 and 2022 and used the auto industry as an example of that. Auto production dropped from 11.7 million vehicles in July 2020, roughly the pre-pandemic rate, to less than 9 million in the fall of 2021, due to shortages of computer chips caused by lockdowns in Asia.
Biden to keep tariffs if re-elected?
The 2024 Presidential campaign has begun. “Tariff Man” Trump won Iowa and will likely will the Republican primary in New Hampshire on Jan. 23. He is in the pole position to take on Biden again. WSJ is poisoning the well on one of Trump’s signature trade policies, but it is a policy that Biden has adopted himself.
Despite the USTR punting on renewal of the Section 301 China tariffs – the ones the WSJ hates the most – there is a chance that they will be renewed in May or in a Biden second term.
The Biden team is moving toward keeping many of the 301s in place, and is considering increasing import duties on electric vehicles and some critical minerals, three sources familiar with the matter told Axios on Jan. 5.
The WSJ reported in December that there is a chance a Biden 2.0 would put tariffs on Chinese EVs, which are already tariffed. This would have to include Mexico, however, as China EV makers are setting up shop now. For the time being, they are saying that they are only there to serve the Mexican market. But that cannot possibly be a forever plan. The EV market in the Americas is right here. It’s definitely not in Mexico. The report did not say that the Biden administration is considering tariffs on Chinese EV battery manufacturers, a sector China is coming to dominate globally. The U.S. has no significant EV battery makers. Even Tesla uses China EV batteries.
“A ten percent tariff on over three trillion dollars-worth of imports is $300 billion in new additional revenue to the government, which is double the total corporate tax revenue the government collected last year,” said Ferry, giving the WSJ something else to think about. “You could use a universal tariff to give you the excuse to cut corporate taxes. That money could also be used by the government to help companies facing retaliatory tariffs, which will likely be temporary anyway,” he said, recalling China’s hit against the U.S. farm belt, mainly soy exporters. They basically banned imported American soy and turned to Brazil and Argentina as a replacement.
That didn’t last, though. “They just stopped buying U.S. soybeans out of their anger for the 301s, but soon enough China returned to the American soy market and bought more than ever before,” said Ferry.