Desired Effects of Tariffs Unclear as Impact Grows
The U.S. has placed tariffs on numerous imports from its trading partners and they have responded with tariffs on U.S. products. What are the tariffs’ effects on the economy in the U.S. and abroad—deliberate and unintended? Obie Porteous is an expert on international trade and an assistant professor of economics. Here he discusses tariffs in a Q&A.
What is the current impact on our economy from tariffs that the U.S. has placed on certain imports?
Tariffs are taxes on imported goods that increase domestic prices. This benefits domestic producers of the targeted goods (e.g., steel, aluminum, solar panels, washing machines) while hurting domestic consumers of these goods. This is not a good year to buy a washing machine!
What impact can we expect to see in the future?
Secondary effects of tariffs will increasingly be felt by domestic firms that use the targeted goods to manufacture or make their own products (e.g., automakers, solar installers). As other countries increasingly impose retaliatory tariffs on U.S. exports, exporting sectors (especially agriculture) are starting to be hurt as well.
Are the tariffs achieving the desired result?
It is not entirely clear to an outside observer what the desired result is, which may in part be due to conflicting views within the Trump administration. For example, are the escalating tariffs the U.S. has imposed on imports from China intended as a tool for convincing China to change a specific policy or practice (e.g., on intellectual property protection) so that Chinese and American firms can compete in a fairer and more open global marketplace? Are they intended as a way to reduce the U.S. trade deficit? Or are they intended to be a step towards isolating China and preventing it from competing with the U.S. economically?
What are some possible unintended consequences of the U.S. tariffs here or abroad?
Of particular concern is the way that the U.S. has invoked the little-used “national security exception” to justify its steel and aluminum tariffs, which would otherwise violate the rules of the global trading system (rules the U.S. helped write and from which it greatly benefits). Since the national security justification in this case is very indirect, the risk is that this opens the door for all countries to implement many different tariffs in the future on national security grounds.
How will our trading partners be affected by the tariffs we’ve placed on their goods?
Foreign producers of the targeted goods will be hurt. As our trading partners start putting retaliatory tariffs on U.S. exports, their consumers may also suffer somewhat. There will also be some trade diversion that takes place. For example, China will buy more soybeans from Brazil and less from the U.S. while its retaliatory tariff on U.S. soybeans is in place.
What generally has happened when the U.S. or other countries have imposed multiple tariffs in the past?
The last “trade war” (escalating tit-for-tat tariffs) began in 1930 with the Smoot-Hawley tariffs, which were much broader and more severe than anything currently under consideration. These tariffs and the subsequent retaliatory tariffs imposed by other countries exacerbated the Great Depression.
What is your estimate of how long the tariffs will be in place?
While some of the specific tariffs like those on solar panels and washing machines are scheduled to be phased out over three to four years, the “national security tariffs” on steel and aluminum and the tariffs against China are more indefinite. Their duration will depend on (1) the outcome of legal disputes over them currently being processed by the World Trade Organization, (2) if and when the Trump administration is able to negotiate a satisfactory agreement with China, and (3) any changes in the U.S. position following the 2020 elections.