It’s important to first understand what a tariff actually is and does before we can determine whether Trump’s new trade barriers are good or bad.
The biggest chunk of tariffs in the Great Tariff War of 2018 is between the United States and China, beginning with two rounds of tit-for-tat tariffs worth around $50 billion against one another. The United States just raised on the ante by another $200 billion. China will not fold; they will go “all in” in this poker game, but we don’t know what that means yet as they hold their cards close.
There is plenty of collateral damage in a tariff war because the one-upmanship spills over beyond the sectors named in the original complaint (steel for example), sweeping in producers like farmers for maximum political effect. The other dirty little secret in tariff wars is that they provide cover for governments to protect the producers of products facing normal market competition. That’s what might just be motivating our closest trading partners to put American whiskey on their lists for tariff retaliation.
The Brookings Institute Metropolitan Policy Program developed and maintains the Export Monitor. In the unfolding tariff war with some of our major trading partners, the analysts at the Metropolitan Policy Program recently released an important analysis of how exposed individual U.S. states and metropolitan areas are to new tariffs on the products they make and export.
The U.S. Administration has announced yet another investigation which could result in tariffs – this time on automobiles. Given the recent flurry of trade actions, it would be understandable if they all started to blend together in the mind of observers.
In early April, China announced $3 billion worth of tariffs on 128 U.S. goods including fruit, wine, nuts – and the type of American ginseng grown in Marathon, Wisconsin. With a new 15 percent tariff on their ginseng, Wisconsin growers worry they will lose sales to Canadian producers who compete for the same customers in China.
American craft breweries sold 482,309 barrels valued at $125.4 million to customers overseas in 2017. Over half of those exports went north to our good beer-drinking friends, the Canadians. Mexican brewers are the largest customer for American barley. If NAFTA negotiations don’t go well, we may all see the cost on our tab.
While President Trump believes China’s large trade surplus shifts the balance of power in a tariff war to the United States, China can respond by punishing U.S. affiliates, who are sitting ducks in a trade war.
Although the steel and aluminum tariffs are promoted by the Trump administration as a strategy to seek fairness for those industries, the tariffs will incite retaliation by trading partners, imposing significant costs on large numbers of U.S. producers and consumers who have nothing to do with these industries’ grievances.
The few domestic companies that may (or may not) benefit from special treatment shouldn’t outweigh the costs for the rest of the economy.