Share content on LinkedIn Share content on YouTube

Tariffs: Tarrifying or Tarrific?

January 24, 2025
0
Comments

One curiosity of living a multi-generational life: You witness that certain things occur in cycles.

Hem lengths rise and fall with the thinning and widening of ties. Being in fashion loses its appeal the second time that bell bottoms and tie-dyed shirts come into style. Coffee’s good. Coffee’s bad. Coffee’s good again.

In a recent conversation with a metal-fabricator executive, he remarked that he is looking forward to the across-the-board tariffs on foreign trading partners that President Trump proposed, hoping that they will encourage reshoring. Trump has threatened a 60% tariff on goods from China and a 20% tariff on all other imports. That conversation prompted me to recall my coverage of tariffs in 2002 and to research their history. 

Tariffs are Not New

Interestingly, tariffs—taxes on imported goods—have been imposed since the United States’ founding, comprising the largest source of government revenue until the creation of the federal income tax in 1913. Early on, tariffs were imposed to further discourage reliance on Britian’s goods and foster the young nation’s domestic industrial growth. Tariffs rose as high as 50% in 1828, according to History.com.

In the wake of the stock market crash of 1929, Congress passed the Smoot-Hawley Tariff Act, which raised the country’s already high average tariff rate by 20%. Several foreign countries soon enacted retaliatory tariffs, and between 1929 and 1932, U.S. imports from and exports to Europe fell by about two-thirds. Many historians believe that the tariffs significantly worsened the Great Depression.

Tariffs fell out of favor after that, scorned as “protectionist,” and free-trade proponents forged multiple free-trade agreements around the globe. Economists and the general consensus held that that global trade enhanced the U.S. economy. 

The North American Free Trade Agreement (NAFTA) was enacted Jan. 1, 1994, on the belief not only that the United States, Canada and Mexico all would benefit economically, but also that it would help halt illegal immigration from Mexico to the United States.  

Enter the Dragon

Soon after China was admitted to the World Trade Organization in December 2001, giving it access to the international trade system, the country’s low-cost products took over American store shelves.

As part of the agreement, China was supposed to reduce its tariffs, and eventually, eliminate them, facilitating America’s ability to export American-made goods into the China market; stop its subsidies and dumping; guarantee intellectual property rights; and allow direct foreign investment. However, 24 yr. later, it’s clear that China only partially complied with its terms of the agreement—still limiting access to its market, still not floating its currency, still subsidizing its industries, and still traipsing on intellectual property rights. In essence, open access was not reciprocated. China exploited foreign-market access. 

The Tradeoff for Low Prices

The net result: Chinese-manufactured, low-wage, low-priced goods entered into the United States en masse. Because the country’s government pegged its currency at a low ratio to the dollar, its goods were priced artificially low just by crossing the border. 

U.S. consumers benefitted, with cheaper prices and increased buying power. U.S. corporations that offshored their operations to China benefitted through low-wage labor and other trade transgressions, then profited immensely when exporting products back stateside.

The tradeoff: U.S. manufacturing was decimated, unable to compete on price. One great U.S. industrial employer after another went under, pink-slipping millions of workers.

“A 2020 analysis by the nonprofit Economic Policy Institute, a labor-oriented think tank, estimated that the U.S. trade deficit with China resulted in the loss of 3.7 million jobs from 2001-2018,” a Politico article states. 

Every year since 2001, the U.S. trade deficit, especially with China, but also with Mexico and Canada, has grown.

“Let the market determine the result,” free-market stalwarts insisted. But some trading partners, particularly China, were playing at the country club without paying dues. Unfair trade is not free trade, opponents insisted.

Countervailing Tariffs

In an effort to tourniquet the bleeding of manufacturing to offshore locations, some members of Congress proposed legislation for countervailing tariffs on Chinese imports, designed to equal the financial damage incurred by the country’s trade transgressions, particularly, currency manipulation. Ironically, Congressional Democrats were pushing for tariffs, and Congressional Republicans blocked the legislation on the basis that tariffs were protectionist, and, therefore, counter to free trade. The bills did not pass.

Select tariff efforts were implemented for targeted industries suffering extreme damage from foreign interests.

In March 2002, President George W. Bush imposed tariffs of as much as 30% on most steel imports from Europe, Asia and South America. He lifted them 21 mo. later. Some in the Bush administration feared that the move not only would increase the price of steel for domestic manufacturers—which it did—but also strain prompt retaliation from European allies—which it also did. PMA was active in convincing the Bush Administration in terminating the tariffs (through the association’s participation in the Con­suming Industries Trade Action Coali­tion’s advocacy efforts) because of the damage they would do to domestic metal-using manufacturers.

In 2009, President Obama imposed a 35% tariff on Chinese tire imports in an effort to bolster the domestic tire industry, which lost 4000 jobs due to the cheaper imports. In 2016, antidumping duties (different from tariffs and which could occur under any administration) on cold-rolled steel from seven countries, including China, were imposed.

In 2018, Trump enacted Section 232 “national security” tariffs—25% on steel and 10% on aluminum—on all imports, and Section 301 tariffs on imports of all products from China that ranged from 10% to 25%. President Biden kept these tariffs in place, converting the Section 232 steel and aluminum tariffs to tariff rate quotas for the European Union, United Kingdom and renewing the Section 301 tariffs, including increasing tariffs on some products to 50% (solar cells) and 100% (Chinese electric vehicles). 

The Tradeoff for High Tariffs

Tariffs may “level the playing field” with trade transgressors, but the leveling does not come free. Tariffs raise costs for companies that rely on imports. Those companies, in turn, typically pass their higher costs on to their customers in the form of higher prices. That’s why economists say that consumers usually end up footing the bill for tariffs. In addition, imposing tariffs on one part of the supply chain can create ripple effects that disrupt other parts of the supply chain. For instance, the Section 232 steel tariffs turned the United States into an “island” of high steel prices, placing PMA members at a disadvantage compared to overseas competitors who benefit from lower, globally determined steel prices.

Tariffs also are likely to provoke retaliation.

A PBS article cited a study by economists at the Massachusetts Institute of Technology, the University of Zurich, Harvard and the World Bank, concluding that Trump’s 2017 steel and aluminum tariffs failed to restore jobs to the American heartland. The tariffs “neither raised nor lowered U.S. employment’’ where they were supposed to protect jobs, the study contends. “Despite Trump’s 2018 taxes on imported steel, the number of jobs at U.S. steel plants barely budged,” the PBS article stated. A 2019 Federal Reserve Board Study study found that increased input costs due to the steel and aluminum tariffs were associated with a 0.6% reduction in manufacturing employment by mid-2019, equating to approximately 75,000 fewer jobs than would have existed without the tariffs. Obama’s tariffs on Chinese tire imports brought back 1200 of the 4000 jobs lost in the industry, but at a cost. According to a 2012 Peterson Institute study, the price increase on non-Chinese tire imports cost consumers as much as $817 million, and U.S. tiremakers’ price increase as a result of the tariffs was $295 million. All told, they calculated that each of those 1200 saved jobs cost $900,000 each. 

The Consuming Industries Action Coalition Foundation (PMA also was a member of this organization) claimed in a February 2003 report that more Americans lost their jobs in 2002 due to higher steel prices as a result of Bush’s steel tariffs than there were Americans employed in the steel industry that year. A September 2003 U.S. International Trade Commission report found that the effect of the safeguard measures translated to a welfare loss of $41.6 million to the United States, and returns on capital fell by almost $300 million.

The 2020 United States-Mexico-Canada Agreement (USMCA) that Trump negotiated was heralded as a radically improved trade agreement over NAFTA that purportedly would favor U.S. manufacturing, but 4 yr. later, as Mexico’s trade imbalance with the United States has burgeoned from -105.4 to -157.2 billion, it’s apparent that USMCA created winners and losers, but did not solve all the problems associated with free trade. 

Time will tell which tariffs may be imposed by a second Trump Administration and how they will shape the economy. While evidence shows that certain sectors, particularly those facing significant competition from imports, can benefit from the short-term protection tariffs provide, these measures are not cost-free. Tariffs often lead to higher input costs for downstream industries, create inefficiencies in the supply chain, and place domestic businesses at a disadvantage in the global market. Trump will need to balance supporting vulnerable industries with addressing the unintended consequences that tariffs have historically had on the broader economy. MF

Industry-Related Terms: Form, Ties
View Glossary of Metalforming Terms

Technologies: Management

Comments

Must be logged in to post a comment.
There are no comments posted.

Subscribe to the Newsletter

Start receiving newsletters.