The Impact of Trade and Tariffs on the United States Key Findings From the Tax Foundation; Steve Rattner Charts
Port of Oakland, aerial photograph from a SWA flight inbound to OAK from PDX; Daniel Parks, Wikipedia
• Trade barriers such as tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.
• Measures of trade flows, such as the trade balance, are accounting identities and should not be misunderstood to be indicators of economic health. Production and exchange – regardless of the balance on the current account – generate wealth. • Since the end of World War II, the world has largely moved away from protectionist trade policies toward a rules-based, open trading system. Post-war trade liberalization has led to widespread benefits, including higher income levels, lower prices, and greater consumer choice. • Openness to trade and investment has substantially contributed to US growth, but the US still maintains duties against several categories of goods. The highest tariffs are concentrated on agriculture, textiles, and footwear.
• The Trump administration has enacted tariffs on imported solar panels, washing machines, steel, and aluminum, plans to impose tariffs on Chinese imports, and is investigating further tariffs on Chinese imports and automobile imports.
• The effects of each tariff will be lower GDP, wages, and employment in the long run. The tariffs will also make the U.S. tax code less progressive because the increased tax burden would fall hardest on lower- and middle-income households.
• Rather than erect barriers to trade that will have negative economic consequences, policymakers should promote free trade and the economic benefits it brings.
Erica York Analyst FISCAL FACT No. 595 June 2018
TAX FOUNDATION | 2 Introduction Trade barriers, such as tariffs, have been demonstrated to cause more economic harm than benefit; they raise prices and reduce availability of goods and services, thus resulting, on net, in lower income, reduced employment, and lower economic output. Since the end of World War II, the world has largely moved away from protectionist trade policies toward a rules-based, open trading system. This widespread reduction in trade barriers has contributed to economic prosperity in many ways, including large increases in trade activity and accompanying gains in economic output and income. Openness to trade and investment has substantially contributed to U.S. growth, but the U.S. still maintains duties against several categories of goods. The overall effective rate of these tariffs appears low, but varies widely across categories of goods. The highest duties apply to clothing, apparel, and footwear; some of the lowest apply to aircrafts, spacecrafts, and live animals. This paper provides a brief overview of tariffs, the basic economics of trade and barriers to trade, and explains why the trade balance shouldn’t be viewed as an indicator of economic health. Then the paper reviews the current United States Harmonized Tariff Schedule and recent developments in United States tariff policies. Overview of Tariffs Tariffs are a type of excise tax that is levied on goods produced abroad at the time of import. They are intended to increase consumption of goods manufactured at home by increasing the price of foreign-produced goods. 1 Generally, tariffs result in consumers paying more for goods than they would have otherwise in order to prop up industries at home. Though tariffs may afford some short-term protection for domestic industries that produce the goods subject to tariffs by shielding competition, they do so at the expense of others in the economy, including consumers and other industries.2 As consumers spend more on goods on which the duty is imposed, they have less to spend on other goods—so, one industry is propped up to the disadvantage of all others. This results in a less efficient allocation of resources, which can then result in slower economic growth. Tariffs also tend to be regressive in nature, burdening lower-income consumers the most. 1 Jagdish Bhagwati, “Protectionism,” in David R. Henderson, ed., The
WASHINGTON — The National Retail Federation today issued the following statement from President and CEO Matthew Shay in regard to U.S. tariffs on $34 billion of Chinese goods set to take effect Friday.
“With tariffs against China taking effect, American consumers are one step closer to feeling the full effects of a trade war. These tariffs will do nothing to protect U.S. jobs, but they will undermine the benefits of tax reform and drive up prices for a wide range of products as diverse as tool sets, batteries, remote controls, flash drives and thermostats. And students could pay more for the mini-refrigerator they need in their dorm room as they head back to college this fall.
“We strongly urge the administration to abandon its plans for tariffs on another $200 billion in Chinese imports, which would destroy thousands of American jobs and raise prices on virtually everything sold in our stores. Reining in China’s abusive trade policies is a goal shared by many countries, but a strategy based on unilateral tariffs is the wrong approach and it has to stop.”
About NRF
The National Retail Federation is the world’s largest retail trade association. Based in Washington, D.C., NRF represents discount and department stores, home goods and specialty stores, Main Street merchants, grocers, wholesalers, chain restaurants and internet retailers from the United States and more than 45 countries. Retail is the nation’s largest-private sector employer, supporting one in four U.S. jobs — 42 million working Americans. Contributing $2.6 trillion to annual GDP, retail is a daily barometer for the nation’s economy. NRF.com
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