the trump tariffs - wordpress.com · 2018. 12. 27. · us protective tariffs •the international...

The Trump Tariffs

Fall 2018

The Trump Tariffs

• Tariff Basics

• U.S. Tariff History

• The Trump Tariffs

• Review

• Concluding Remarks

TARIFF BASICS

Trade Barriers

Trade barriers are government restrictions on international trade.

Trade Barriers

There are two types of trade barriers. Non-tariff barriers Tariffs

Trade Barriers

Non-Tariff Barriers

• Import license

• Import quota

• Subsidies

• Local content requirements

• Embargo

Tariffs

• A tariff is a tax.

• It is added to the cost of imported goods.

Trade Barriers

The most common trade barriers are on agricultural goods.

The most protected manufactured goods are textile, apparel and footwear.

Top Five Reasons for Trade

Barriers

1. protect domestic jobs from “cheap” labor abroad.

2. improve a trade deficit

3. protect infant industries

4. protect from “dumping.”

5. earn more revenue for the government

Other Reasons for Trade

Barriers

6. Protect consumers

7. National security

8. Retaliation

Shark fins Horse meat

Foods Banned from being Imported

to the United States

Trade Barriers

High income countries tend to have less trade barriers than middle income countries.

Middle income countries have less trade barriers than low income countries.

Tariff Basics

How Tariffs Work

Let’s say a unit of domestic sugar costs $115 and a unit of imported sugar costs $100. Businesses that use sugar in their products and consumers will buy the lower priced sugar $100.

The U.S. may put a tariff on imported sugar to protect the domestic sugar industry.

Tariff Basics

How Tariffs Work

The government imposes a 25% tariff on imported sugar.

If imported sugar costs $100 then $25 is added to the cost of the sugar before it is allowed into the market. The imported sugar now costs $125.

Tariff Basics

How Tariffs Work Businesses and consumers in the US are going to buy US-produced sugar, which keeps money in the wallets of US sugar producers and farmers. The price of sugar will increase.

Before the Tariff After the Tariff

Imported Sugar $100 $125

Domestic Sugar $115 $115-124

Tariff Basics How Tariffs Work

Jobs in the domestic sugar industry would be saved. Potential for loss of jobs for U.S. workers affiliated with sugar imports. importers longshoreman transportation: air, rail, trucking business that can’t afford the higher cost of sugar

Tariff Basics How Tariffs Work

Tariffs usually have unintended consequences.

In 2002 a tariff was imposed on foreign steel.

For every job saved with the 2002 steel tariff 80 jobs were lost in manufacturing that used steel.

The tariff was dropped after 18 months.

Tariff Basics US Protective Tariffs

• The International Trade Commission lists over 12,000 specific tariffs on imports to the United States.

• Hundreds of agricultural, textile, and manufacturing items are highly protected.

Tariff Basics Examples of US Protective Tariffs

Canned Tuna 35% tariff on Ecuador’s tuna

Paper clips 126% tariff on Chinese paper clips

Tobacco 350% tariff on foreign tobacco

Tariff Basics Examples of US Protective Tariffs

New Balance manufacturers most of its shoes in the United States. Nike manufacturers most of its shoes outside the U.S. so their shoes are subject to a 48% tariff Nike’s are generally more expensive than New Balance.

Tariff Basics

How Do Tariffs Affect Prices?

Tariffs increase the price of imports.

Domestic producers are not forced to reduce their prices as they would from increased competition. They may even increase prices.

Consumers are left paying higher prices as a result.

Tariff Basics

How are Tariffs Collected?

Tariffs are paid to the customs authority of the country imposing the tariff.

Tariffs on imports coming into the United States, are collected by Customs and Border Protection.

Tariff Basics

Who Pays Tariffs?

• Tariffs are paid by the importer (usually domestic) and never the exporting country.

• Example:

– A US tariff on Chinese televisions is paid by the importer, not the Chinese government.

• Governments do not pay taxes.

Tariff Basics

Who Really Pays Tariffs?

Sometimes a business will pay increased costs resulting in a loss of revenue for its shareholders. Shareholder pay.

Tariffs are almost always paid by consumers.

Tariff Basics


Businesses, over time, will find suppliers whose products are not subject to tariffs.

Example: A business will stop buying Chinese televisions and begin selling televisions not subject to the import tax. At this point no tariff is paid.

Tariff Basics


Businesses subject to high tariffs in one country will look for new markets that do not impose tariffs.

Example: Nike may look to increase sales in countries where there are lower tariffs.

Tariff Basics Authority to Levy Tariffs


Article 1, Section 8, of the U.S. Constitution gives Congress the power to levy taxes, including tariffs.

Article 2, of the Constitution, gives the President the “Power, with the Advice and Consent of the Senate, to make Treaties.”


Prior to the early 1930s, Congress itself usually set tariff rates for imported products. Tariffs were chosen based on the domestic politics. Generally, a Republican controlled Congress would prefer higher tariffs and a Democrat controlled Congress would prefer lower tariffs.


By the 1930s treaties were including agreements on tariffs so Congress through legislation gave the President limited power to set tariffs.


In 1934, for the first time, Congress delegated to the President the authority to reduce tariffs in the Reciprocal Tariff Act.


This authority, however, was limited by law, which prescribed time periods within which the President could exercise such power, and was subject to periodic review and renewal.


From 1934 until 1974 Congress enacted legislation delegating authority to the President to negotiate tariff rates.

Most of the provisions require the President to make some threshold finding or determination before he may take some action to counteract the findings.


Trade Expansion Act of 1962 Section 232

If the Secretary of Commerce determines that “an article is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security. . . then the President is authorized to take certain actions necessary to adjust the imports of such article.”


Trade Act of 1974 Section 301 Delegates authority to the Executive to modify certain tariff rates when “the rights of the United States under any trade agreement are being denied” or “an act, policy, or practice of a foreign country ... (i) violates, or is inconsistent with, the provisions of, or otherwise denies benefits to the United States under, any trade agreement, or (ii) is unjustifiable and burdens or restricts United States commerce.”


Trade Act of 1974 Section 201

Permits the President to grant temporary import relief, by raising import duties or imposing non-tariff barriers on goods entering the United States that injure or threaten to injure domestic industries producing like goods.

Tariff Basics

What is a Trade War?

“A trade war is an economic conflict resulting from extreme protectionism in which states raise or create tariffs or other trade barriers against each other in response to trade barriers created by the other party.”

Wikipedia

US TARIFF HISTORY

Ryan P. Smith SMITHSONIAN.COM April 12, 2018

U.S. Tariff History

“More than 300 years before President Donald Trump declared his intention to protect American steel . . . American colonists were grappling with their own serious concerns regarding trade policy. . .”

Smithsonian.com

U.S. Tariff History

The American debate on tariffs is as old as the United States itself.

U.S. Tariff History

Colonial Period

The Townshend Acts of the mid 1760s charged import duties on goods important to the colonists- glass, lead, paper and tea.

U.S. Tariff History

Colonial Period

The result was the Boston Massacre and the Sons of Liberty’s “tea party”.

U.S. Tariff History

A New Nation

• The Colonists so loathed taxes that under Articles of Confederation federal leadership had no power to tax its citizens.

• This model was so unworkable, that it was replaced with a Constitution that gave the federal government authority to tax.

U.S. Tariff History

A New Nation

• Americans had visions of a tax-free American utopia but this ended as conflicts with the British Empire grew.

• Embargo of 1807 was implemented to punish Great Britain by restricting trade of British goods.

U.S. Tariff History

A New Nation

• Embargo of 1807 had three purposes: – Punish Great Britain for trade restrictions

– Raise revenue

– Energize homegrown American industry

The embargo was good for the textile industry and the beginning of manufacturing in the United States.

The embargo was lifted after the War of 1812.

U.S. Tariff History A New Nation

• Many rural producers were not manufacturers but farmers who lacked the access to industry enjoyed by Northern cities.

• This was especially true in the South which relied on imports.

U.S. Tariff History

A New Nation

Tariffs would protect the infant industries of the North, raise revenue, but become a burden on the South.

U.S. Tariff History A New Nation

With its focus on agriculture, Southern life necessitated a healthy amount of importation, so it was all but inevitable that a tariff conflict would erupt along North-South lines.

U.S. Tariff History

A New Nation

In 1828, John Quincy Adams, signed off on a battery of massive tariffs (at 38%)for almost all imported goods designed to promote Northern industry, but causing an uproar in the South.

U.S. Tariff History

A New Nation

South Carolina threatened to withdraw from the Union entirely until a comprise was made and tariffs remained low until after the Civil War.

Tariff of Abomination

U.S. Tariff History

A New Nation The promises of the 1833 Compromise Tariff gradually fell by the wayside and the South complained of economic damage caused by the tariffs. In the election of 1844 James Polk defeated Henry Clay in part due to the Southern vote. In 1846, Polk signed the Walker Tariff which lowered tariff rates.

U.S. Tariff History

After the Civil War

• Rapid increase in industrialization.

• The young Republican Party promoted an aggressive tariff policy.

• Protectionism reigned supreme in postbellum America.

U.S. Tariff History After the Civil War

• 1861 – 1933 was an era of pro tariff Republican political domination.

• During this time only two Democrats were elected President.

Grover Cleveland (1885–1889 and 1893–1897)

Woodrow Wilson (1913 – 1921)

In the late 19th century, the Democratic Party (represented here by Grover Cleveland and his running mate Adlai Stevenson) was the party of free trade, while the GOP was the faction of harsh tariffs. By the late 20th century, these roles had completely reversed. (Cornell University Library)

U.S. Tariff History

The Gilded Age

There was a spirit of economic isolationism and tariffs remained completely central to American economic policy through the Roaring Twenties and up to the dawn of the Great Depression.

U.S. Tariff History

The Tariff Act of 1930

• In 1930, Smoot and Hawley wrote a bill intended to stem the bleeding of the 1929 stock market crash.

• It raised tariffs to the highest levels since 1828 on over 20,000 imported goods.

U.S. Tariff History

The Tariff Act of 1930

President Herbert Hoover signed the Tariff Act of 1930, also known as the Smoot-Hawley Act.

U.S. Tariff History

The Smoot-Hawley Act

• The Smoot-Hawley Act was followed by retaliatory tariffs by America's trading partners.

• Both the tariff and the retaliatory tariffs were major factors leading to a 50% reduction of American exports and imports during the Great Depression.

U.S. Tariff History


The Smoot-Hawley Act is considered by many of the leading economists and economic historians to have worsened the Great Depression.

U.S. Tariff History


• It is known as the most infamous protectionist measure in U.S. history.

• University of Georgia historian, Stephen Mihm, says “It was a disaster for both the American economy and the global system of trade.”

U.S. Tariff History


• The 1932 Democrats won Congress. They passed Reciprocal Trade Agreement Agreements of 1934.

• This act allowed the President to negotiate tariff reductions on a bilateral basis and basically ended Smoot-Hawley.

U.S. Tariff History

Cold War

After WW II the United States shifted in the direction of free trade for two reasons:

1. negative effects of Smoot-Hawley

2. need for cooperation among allies during the cold war so capitalism could defeat communism

U.S. Tariff History

Cold War

In the ideological battle of capitalism vs. communism, it was in the best interest of the United States to extend its hand to allies in the economic sphere as well as the diplomatic and military spheres.

U.S. Tariff History

Cold War

It was this sort of cooperative atmosphere that gave rise to the General Agreement on Tariffs and Trade (GATT) in 1947, and the World Trade Organization (WTO) in 1995.

U.S. Tariff History

Cold War

• Republicans, once the party of unwavering protectionism, came to establish themselves as the free trade party over the span of the Cold War.

• Democrats became increasingly associated with tariffs and protectionism not driven by industry, which it had been before, but by labor unions wary of competition from Japan and Taiwan.

U.S. Tariff History

Mid 20th Century

Approaches to manufacturing began to change in the mid-20th century

Advances in communication

Transportation became cheap and fast

Production became global rather than local

Free trade lent itself better to the global market place

U.S. Tariff History

Mid 20th Century

• Starting around the administration of President Bill Clinton, there was a bipartisan consensus for free trade.

• Although Democrats were not less enthusiastic it was widely acknowledged that in a globalized, digital era, free trade was the best policy.

U.S. Tariff History The Trump Tariffs

• President Trump has set out to change America’s attitude toward tariffs.

• Protect American industries, like steel and aluminum with large tariffs.

U.S. Tariff History The Trump Tariffs

• This policy is contrary to the bipartisanship that started in the Clinton- era.

• It is also opposed to decades of Republican anti-tariff rhetoric.

THE TRUMP TARIFFS

Trump’s Tariffs

Bad Trade Deals

• President Trump has long stated the United States is getting ripped off when it comes to trade.

• He called NAFTA a disaster. He pulled out of the Trans-Pacific Partnership and repeatedly tweets about America’s bad trade deals.

Trump’s Tariffs Bad Trade Deals

He believes these bad trade deal have hurt American industry, cost millions of American jobs and is responsible for the American trade deficit.

Trump’s Tariffs How China Cheats

• It protects it home markets from American imports with high tariffs, tricky non-tariff barriers, and costly, constantly changing regulations.

• It subsidizes its government businesses and tries to crush free market competition

• It gives it businesses cheap loans and cheap energy, and turns a blind eye to environment, health and safety standards.


“Above all, China cheats by stealing key technologies and intellectual property from the United States and other countries. These activities range from cyberespionage and forced technology transfer down to massive open-source collection and plain-old physical theft. “

Fox News


China - U.S. Trade is a Great Decisions topic for 2019

Trump’s Tariffs

• In 2018 President Trump raised tariffs on America’s biggest trade partners.

• By raising tariffs and or threatening to raise them he expects to get the United States more favorable bilateral trade agreements.

Trump’s Tariffs

• These agreements , according to Trump, will save American manufacturers and create more good paying jobs.

• The authority to raise tariffs comes from laws already enacted by Congress.

Trump Tariffs Authority to Levy Tariffs

Trade Expansion Act of 1962 Section 232 National security

Trade Act of 1974 Section 301 Trade rights under any trade agreement are being denied or a policy or practice of another country that restricts U.S. trade.

Trade Act of 1974 Section 201 Threat to domestic industries

Trump’s Tariffs

Trump’s Tariffs

• The Trump tariffs are a series of tariffs imposed Donald Trump as part of his economic policy.

• The new tariffs are on steel, aluminum, washing machines, and thousands of other products that American businesses and consumers buy from China.

Trump’s Tariffs

Tariffs have been imposed as the result of various trade investigations that concluded there was injury to U.S. industries, national security was threatened, and unfair trade practices are being used against the United States.

Trump’s Tariffs June 2018

Trump’s Tariffs

Trump’s Tariffs

Global Response

Britain: "Deeply disappointed“

Theresa May said that she was "deeply disappointed at the unjustified decision by the US to apply tariffs to EU steel and aluminum imports,"

Trump’s Tariffs Global Response

EU: "Totally unacceptable“

Commission President Jean-Claude Juncker has threatened to hit back at the US with EU tariffs on equal value, saying "It's totally unacceptable that a country is imposing unilateral measures when it comes to world trade."


France: This is like the OK Corral Bruno Le Maire, France's finance minister said "Our US friends must know that if they were to take aggressive actions against Europe, Europe would not be without reaction." "World trade is not like the settling of accounts at the OK Corral,"


Canada: "Illegal and counterproductive.“

Prime Minister Justin Trudeau described the move as "totally unacceptable" and an "affront to the thousands of Canadians who have fought and died alongside their American brothers in arms."


• Trudeau also said Trump's national security justification was "simply ridiculous.“

• He added that Canada would impose "dollar for dollar tariffs“


Mexico: Let's keep it in proportion

Mexican Economy Minister Ildefonso Guajardo described the new landscape as a "clearly defined battlefield," but not a trade war. He also vowed that the country would take revenge proportionally.


• China has hit back with tariffs on $60bn of US goods.

• China will target goods such as liquefied natural gas, produced in states loyal to the US president.

• China has targeted agricultural goods from states that supported President Trump.

Trump’s Tariffs

Global Response

Trump’s Tariffs Response by Economists

On May 3, the National Taxpayers Union delivered an open letter to President Trump and Congress, signed by over 1,100 economists representing the full political spectrum, left, center, and right, urging him to reconsider his tariff policy.


• According to a poll of 60 economists by Reuters 80% believed the tariffs on steel and aluminum would be a net harm to the U.S. economy.

• None believed the tariffs would benefit the U.S. economy.


In a 2009 survey by the American Institute of Economic Research, 83 percent of economists agreed that the U.S. should “eliminate remaining tariffs and other barriers to trade.” In the University’s October 2016 survey, 100 percent of respondents agreed that a plan to levy import tariffs in order to increase U.S. production is a bad idea.


In the March 2018 survey 100 percent of respondents stated that U.S. tariffs on steel and aluminum will not improve Americans’ welfare.

Trump’s Tariffs Effects on Consumers

According to a December 2018 Tax Foundation report, “. . . consumers lose more than producers gain, resulting in a net loss to the economy.

Thousands of consumer products will increase in price as a result of the tariffs.


Average $270


According to Kiplinger these will be costing more – Cars

– Beer, soda, soup, candy

– Meat and produce

– Health care

– Washing machines

– Solar panels

– Small appliances

– Shoes


No Tariff Tariff

Cost 300 349

Sales Tax 8% 24 28

Total 324 377

How tariffs affect the price of an average top loading washing machine.


A few of the major brands saying they will be raising prices as a result to the Trump tariffs

Costco Coca-Cola Campbell Soup

Pepsi Winnebago Toyota

Walmart Whirlpool Kleenex Huggies

Gap General Motors Newell Brands

Trump’s Tariffs Effects on Building

Among Trump’s Tariffs is a tax on Canadian lumber.

According to Robert Dietz, chief economist of the National Association of Home Builders “A lumber tariff is very much a tax on homebuyers. It's pushed up the price of a typical home by $9,000.”


Prices for iron nails, flooring, granite countertops, tiles, sinks, roofing, cement, paints, cabinets, wooden and steel doors, windows, lighting, appliances, and much more will go up as Trump’s tariffs take effect.


Estimates by the National Association of Home Builders indicate that of the 6,000 items on the list of goods imported from China that are now subject to tariffs, 463 are “ubiquitous” in home construction and remodeling.


Homeowners and home buyers will pay the extra fees adding thousands of dollars to the price new homes and the cost to remodel older ones.

Trump’s Tariffs Winners

American steel manufacturing

Trump’s tariffs were meant to help save U.S. metal producing jobs, of which there are about 415,000.

The U.S. Treasury has gained billions of dollars.


Even after the recent increase in revenue from tariffs, they account for a small share of government income, about 2% .


“Major American steelmakers have reported higher-than-expected revenue in the second-quarter thanks in part to Trump's 25 percent tariffs on imported steel.

Nucor, the largest US steel company, said in July that its second-quarter earnings more than doubled, partly because of higher steel prices.”

NPR

Trump’s Tariffs Winners or Losers

• Producers of soybeans, sorghum, corn, wheat, cotton, dairy and hogs lost billions of dollars as a result of retaliatory Chinese tariffs.

• The Trump administration announced its plans to spend up to $12 billion to help offset losses incurred by farmers .

Trump’s Tariffs

Losers • Major companies that use steel such as General Motors, 3M,

Stanley Black and Decker, and Caterpillar say they are facing higher prices because of Trumps tariffs on steel and aluminum.

• The Tax Foundation estimates the impact of enacted and announced tariffs from the Trump administration would cause employment in the United States to decline by 459,816.

Trump’s Tariffs

Losers

A Trade Partnership analysis found Employment in steel and aluminum would increase by 26,280 jobs over 1-3 years. The rest of the economy would have a loss of 432,747 jobs Net loss of 400,445 jobs The analysis found, “16 jobs would be lost for every steel/aluminum job gained.”

Trump’s Tariffs

Losers

• The Center for Automotive Research (CAR)cites the biggest concern as the threatened use of trade rules known as Section 232 that would declare foreign-made cars and car parts a threat to national security.

• CAR “warns that sales could plunge by as much as 2 million vehicles a year, resulting in the loss of up to 715,000 American jobs and a hit of as much as $62 billion to the U.S. GDP.”

Trump’s Tariffs

Losers

Peter Nagle, a senior economist with research firm IHS Markit says using Section 232 rules would likely prove devastating. Nagel estimated consumers would be “looking at price increases of $1,300 for a typical mass market product, up to $5,800 for a luxury vehicle.” Those increases would not be limited to just imported vehicles. Toyota, for example, has forecast the price of a U.S.-made Camry would rise about $1,600.

Trump’s Tariffs

Losers Element TV Company, South Carolina

The TV manufacturer, based in rural Fairfield County, will shut down its operations on Oct. 5, laying off 126 people by the end of 2018.

Mid-Continent Nail, Missouri

The nail manufacturer laid off 60 people in June after it was hit with a 25% tariff on the steel it imported from Mexico.

Trump’s Tariffs

Losers REC Silicon, Washington

The silicon materials manufacturer, which supplies products to the solar industry, announced in July it cut 85 jobs at its facility in Moses Lake, Washington, about 30% of its local workforce.

Brinly-Hardy, Indiana

The lawn-care equipment company has laid off 75 employees this summer, CEO Jane Hardy told the Washington Post, citing higher prices of both foreign and US steel in the wake of Trump's tariffs.

https://www.washingtonpost.com/business/2018/07/30/after-trumps-farmer-bailout-manufacturers-ask-what-about-us/?utm_term=.f32bbb1375a0

Trump’s Tariffs

Losers Tampa Bay Times, Florida

The Pulitzer Prize-winning newspaper laid off about 50 employees this year, citing a new tariff on newsprint.

Trump’s Tariffs

Losers

Harley-Davidson

The Wisconsin-based motorcycle company said it would be forced to gradually move production of thousands of its bikes to Europe over the next 9–12 months.

Trump’s Tariffs Stock Market

Will Trump’s Tariffs have the same results as Smoot-Hawley?

Some circumstances are similar

In 1930, 1,028 economists warned Hoover in a letter not to raise tariffs In May, 2018 1,140 economists warned Trump in a letter not to raise tariffs Hoover ignored the letter and raised tariffs Trump ignored the letter and raised tariffs


Will Trump’s Tariffs have the same results as Smoot-Hawley?

Circumstances are different today

The U.S. economy is growing

There is high employment

There is a global economy

Trump is using the tariffs to make better trade deals


“Put simply, the stock market doesn't like tariffs, and if Trump pushes it too far, he could sink the stock market.”

Investor’s Business Daily Nov. 2018

No one knows what will happen to the stock market. There will be ups and downs for reasons that may or may not be related to Trump’s tariffs.

REVIEW AND CONCLUDING REMARKS

Review

Starting around the middle of the 20th Century there was a bipartisan consensus for free trade.

This cooperative atmosphere gave rise to the General Agreement on Tariffs and Trade (GATT) in 1947, and the World Trade Organization (WTO) in 1995.

Review

In this cooperative atmosphere it was widely acknowledged that free trade was the best policy.

Today the world is better than it ever has been.

Review

We learned this at the start the Fall semester with Factfulness.

Review

During this time there were changes in the economy and specifically the manufacturing sector. Jobs were being lost. Factories were closing. Unions became weaker. There were fewer good paying jobs.

Review

Transfer of wealth from producers, steel workers, textile workers. . . to consumers who enjoyed low prices.

Review

• The workers who lost jobs in the global economy hate globalization and free trade.

• No one really spoke for them until Donald Trump.

Review

• Trump came to power, in part, due to support of people who have been marginalized by globalization.

• Many of his supporters blamed free trade for the loss of manufacturing jobs and lack of good paying jobs.

Review

• He promised an easy fix.

• Better trade deals

• High tariffs

• He gave many people hope.

Review

• Trump is fracturing the consensus around free trade.

• He is forcing world leaders to rethink trade and tariffs in a new way.

Trump’s Tariffs The Known

• The vast majority of economists say Trump’s tariffs are bad policy.

• Most business do not like them.

• Economists say the tariffs will result in job losses.

• Consumers will pay more.

• A few will benefit

• Trump has ignored the advice of experts and is moving forward with his tariffs.

Trump’s Tariffs The Unknown

Will high tariffs and bilateral trade agreements work in the age of globalization?

Trump’s Tariffs The Unknown

Is Trump the architect of the future or is he just a messenger sent by the masses of the disenfranchised?

And Best Wishes William and Myron

the trump tariffs - wordpress.com · 2018. 12. 27. · us protective tariffs •the international...

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