Mar 17, 2016 - 9:00am

Would a Tariff Wall Really Protect U.S. Jobs?


Senior Vice President for International Policy

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Several presidential candidates have recently made trade protectionism a priority in their campaigns, as The Wall Street Journal recently highlighted. Amid calls for steep tariffs on imports and pledges to “rip up” U.S. trade agreements, it’s worth asking: Do the benefits of these proposals outweigh their costs?

Fortunately (or not), we can draw upon real world examples and years of expert analysis. Take for example the “safeguard” tariffs imposed by the Obama administration in September 2009 on tire imports from China. According to a study by the Peterson Institute for International Economics, this measure “saved a maximum of 1,200 jobs,” but the “cost per job saved was at least $900,000 in that year.”

The study continues: The “total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011.” As a knock-on effect, the “additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment … [and costing] the US economy around 2,531 jobs.”

President Obama was far from the first to take such action. As Walter E. Williams recounts in Investor’s Business Daily, another:

… concrete example was the Bush administration’s 8% to 30% tariffs in 2002 on several types of imported steel. … The clear beneficiaries of the steel tariffs were steel industry executives and stockholders and the 1,700 or so steelworkers whose jobs were saved.

But there is no such thing as a free lunch or a something-for-nothing machine. Whenever there is a benefit of doing something, there is a guaranteed cost. …

According to a study commissioned by the Consuming Industries Trade Action Coalition, steel-users — such as the U.S. auto industry, its suppliers, heavy construction equipment manufacturers and others — were harmed by higher steel prices.

It is estimated that the steel tariffs caused at least 4,500 job losses in no fewer than 16 states, with more than 19,000 jobs lost in California, 16,000 in Texas and about 10,000 each in Ohio, Michigan and Illinois.

In other words, industries that use steel were forced to pay higher prices, causing them to have to raise prices on what they produced. As a result, they became less competitive in both domestic and international markets and thus had to lay off workers.

It goes on. As long ago as 1987, the Harvard Business Review reported that the “consumer cost in 1980 per job saved for quotas on imported TV sets was estimated at $74,155; for tariffs and quotas on footwear,$77,155; and for tariffs and quotas on carbon steel, $85,272.” And you’ll have to triple those numbers to express the cost in today’s dollars.

 

In a sense, though, the proposals voiced today are for indiscriminate tariffs against all imports from China and Mexico — two of our top three trading partners. Raising a tariff wall around the U.S. economy in this manner would decimate millions of high-wage American jobs and slam families just trying to make ends meet. By one recent estimate, it could cost American consumers $250 billion per year.

The anxiety among voters is understandable: While jobs are no longer scarce, anxiety about job security has been fueled by the slow pace of our recovery from the Great Recession.

But the bottom line could not be clearer: These prescriptions are far worse than the disease.

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.