Trump and Biden trade policies would hurt poorest Americans
As the Republican National Convention meets this week to formally nominate Donald Trump in the wake of the horrible attempt on his life, we should all condemn political violence and overheated rhetoric from all sides. At the same time, the campaign goes on and an election will be held this November. It is still important, therefore, to continue examining the policies advocated by the candidates.
There is no end to the policy differences between Donald Trump and Joe Biden. For instance, I’ve written about the very different approaches that they took towards welfare reform during their presidencies. It is particularly troubling, therefore, when one of their few areas of agreement is a policy that will almost certainly harm those who can least afford it: tariffs and other protectionist trade policies.
Donald Trump has made tariffs a centerpiece of his economic agenda. The Republican Party platform now states explicitly that “Republicans will support baseline tariffs on foreign-made goods.” During his term in office, Trump imposed $80 billion in tariffs on a host of goods from lumber to washing machines. Now he is calling for a 10 percent across-the-board tariff, as well as a 70 percent tariff on goods from China. He has even floated the idea of replacing the income tax with tariffs, something that experts warn would require at least an 85 percent tariff on all imported goods.
Joe Biden has been less vocal about his tariff policy, but he mostly kept Trump’s tariffs in place and added a few of his own as well. His “Buy American” mandates similarly restrict trade. Trump was not far off during last month’s debate when he said, “Joe is doing the exact same thing that I did in office. He hasn’t removed my tariffs.”
This is bad news for low-income Americans.
Trump’s protestations notwithstanding, tarriffs are a tax on Americans consumers. An analysis for the Center for American Progress (CAP), for instance, found that Trump’s proposed across-the-board tariff would increase costs for a typical American household by $1,500 annually. Worse, the cost of tariffs falls most heavily on low-income Americans.
Lower-income Americans have limited resources and spend a far greater portion of their income on tradable goods. Any increase in the cost of those goods means less money is available for other things such as food or rent. For instance, the CAP study warns that Trump’s tariffs would raise the cost of food by $90 per year, the cost of prescription drugs by $90 as well, and gasoline by $120. These might seem like modest increases for middle class families, but they represent a significant burdens for those struggling from paycheck to paycheck.
Tariffs are also more likely to be imposed on products consumed by the poor, such as shoes, clothing, household goods, furniture and appliances, toys, and school supplies. Moreover, tariffs are both higher and more frequent on lower quality, less expensive goods that those with low incomes purchase. As Federal Reserve economist Miguel Acosta and University of Wisconsin’s Lydia Cox have shown, “tariffs are systematically higher on lower lower‐end versions of goods relative to their higher‐end counterparts.” The authors note that, on average, lower‐end consumer goods are subject to tariffs four percentage points higher than their higher‐end counterparts.
Nor is it simply a question of higher priced imported goods. Protected from price competition from imports, American producers are able to raise their prices, making it difficult for consumers to escape the added costs. And, by increasing the cost of components and raw materials, tariffs also increase costs borne by domestic producers leading them to raise prices as well. For example, by increasing the cost of steel used to make automobiles, tariffs can lead to higher priced domestically produced cars.
Of course, advocates might argue tariffs would benefit low-income Americans by making it easier for them to find work. But there is little evidence for this. Automation and other technologies eliminate far more jobs than imports, meaning the impact of tariffs will likely have minimal long-term effects on employment. A study by David Autor and others for the National Bureau of Economic Research earlier this year found that import tariffs had “neither a sizable nor significant effect on U.S. employment in regions with newly protected sectors.” They also noted that foreign retaliation for tariffs “had clear negative employment impacts, particularly in agriculture.” Similarly, the Brookings Institution found that “While tariffs benefited some workers in import-competing industries, they hurt workers in sectors that rely on imported inputs and those in exporting industries facing retaliation from trade partners.”
There are many reasons why tariffs and other trade restrictions are generally a bad idea: they can reduce economic growth, disrupt relations with our allies, and make domestic producers less innovative, efficient, and competitive. But their disproportionate impact on low-income Americans is especially pernicious. That makes it doubly unfortunate therefore that both Trump and Biden are heading down this dead-end road.