Consumers will pay a tariff tax that reflects their shopping choices.
In the field of economics it doesn’t get much more basic. Still, everyday folks can be forgiven a lack of understanding. After all, the inner workings of international tariff policies are not exactly dinner-table talk.
Which is why it made news when Fox News host Chris Wallace pinned down the top White House economic adviser on the topic, cornering Larry Kudlow into acknowledging that China is not paying the United States for higher tariffs — those extra costs fall to American import businesses and, eventually, U.S. consumers.
When, say, another 25% tariff is popped on Chinese goods coming into America, the U.S. business bringing in the Chinese export fronts the cost and usually jacks up prices to the end user who consumes the product. The political idea is that consumers will rebel at higher prices and move on either to other suppliers for American-made goods or products from non-tariff countries. The producing country — in this case China — will feel that pressure and mend its ways.
Some of that could work, some won’t. For example, many tech products — think iPads — are singularly delivered from China. This can hit in reverse, too, when China imposes its own retaliatory tariffs. For example, already Chinese purchases of Brazilian soybeans are up 22 percent on the year, hitting American farmers hard. Is that switch permanent? Good question.
All that makes President Trump’s continuing claim that China is paying the tariffs to the U.S. government at least a misstatement of fact. It doesn’t, however, make the underlying issue — China profiting at U.S. expense, sometimes through outright theft of technology -_any less concerning. Such issues should be addressed. The question is whether trade tariffs constitute smart strategy.
Not to mention, what does a win look like? The goal-setting has not exactly been precise.
What has made China such a successful purveyor of goods to America is not just that country’s export chops or regime-based plans. Truth be told, Americans do not have to leave U.S. shores to identify culprits. This is not entirely a foreign trade policy problem. Consider:
- U.S. consumers want cheaper products and they don’t think much about where they come from or how they got here. Shoppers flock to big-box retailers to pick over shelves stocked with foreign-made products, and then brag about how cheap they bought something. Few give a thought to the fact that most of those shelves used to be filled with American-made goods produced by companies employing U.S. citizens.
- Meanwhile, U.S. manufacturers in a long list of fields found themselves increasingly needing to compete with cheap foreign-made goods. Quickly, they discovered their products could be produced cheaper with overseas labor, giving them not only an opportunity to compete at price-point but also to achieve higher returns. The result: Shuttered U.S. plants and unemployed Americans.
Obviously, American workers are quite capable of making great shirts, comfortable shoes, high-quality phones and tablets and televisions and any number of other consumer goods. But Americans won’t work for these kind of wages: Cambodia, $153 a month; Vietnam, $145 a month; or even rising scales in China, about $1,400 a month.
The problem is real but the arguments are presented too simplistically. And fighting the battle on the tariff front is a blunt instrument that may do more harm than good.
So long as American consumers’ primary interest is low prices and U.S. companies’ main goal is maximized profits, solutions to foreign trade issues will be hard to come by.
At least, though, the current tariff battle should be conducted on honest terms. The escalating war is a tax on American companies and consumers, who are paying the cost until China falls to its knees and capitulates to President Trump’s demands. Don’t hold your breath waiting for that.