Will tariff war boomerang on workers in U.S.?
To defend imposing steep tariffs on imports of steel and aluminum from Canada and Mexico, and then similar tariffs on imports from China and the European Union, the U.S. president’s whining tweets have claimed unfair treatment for U.S. goods and that the U.S. is “almost $800 billion a year down on trade.”
Donald Trump has argued that protecting U.S.-based steel and aluminum manufacturers, along with others, is essential “to protect U.S. national security.” He has also contended that tariffs will protect workers’ jobs in these industries. A tariff is basically a tax on goods imported into a country.
A look at the initial repercussions of his actions shows that even if they fall short of provoking a global trade war that throws an already unstable economic recovery into recession, these tariffs will provoke job losses and higher prices for U.S. workers.
The U.S. government is in the process of renegotiating the North American Free Trade Agreement. NAFTA has regulated trade among Canada, Mexico and the U.S. since Jan. 1, 1994. The opening it gave U.S. agriculture wiped out millions of Mexican farmers, while it provided U.S. manufacturers with readier access to low-wage workers.
Despite advantages to capitalists on both sides of the border from the easy flow of goods and services, Trump has threatened to walk away from NAFTA if it is not reconfigured to favor the U.S. even more.
The auto industry has had plants linked between Canada and the U.S. for over 50 years. A 2004 study showed that 257,000 jobs in Michigan and $13 billion in annual production depend on the crossing between Detroit and Windsor, Ontario.
General Motors stated on June 28 that a new wave of tariffs on its products could lead to “less investment, fewer jobs and lower wages.” Car prices would substantially increase, with the prices of less expensive cars jumping the most. Jobs would be lost as increased prices lead to reduced sales.
There is no evidence U.S. steel and aluminum companies will hire more workers even if tariffs on their foreign competitors improve the profitability of these U.S.-based companies.
For the past 30 years the proportion of U.S. workers engaged in manufacturing has gone from 26 percent to 9 percent. It’s hard to get a job in a manufacturing plant these days, primarily because technological advances have increased workers’ productivity.
According to the American Society for Mechanical Engineering: “In 2015, manufacturing output per manufacturing worker was $482,242; by contrast, each manufacturing worker in 2000 produced $336,847 in 2015 dollars. In 1976, the inflation-adjusted production was just $276,525.” (tinyurl.com/y9fy9f7r)
Even eliminating all manufacturing trade deficits won’t come close to bringing back these jobs lost to technology.
While tariffs may be a boost to steel and aluminum producers, companies that now use cheaper imported metals will lose. The Mercatus Center, a market research think tank at George Mason University, points out: “As a result of new import taxes on steel, the largest nail manufacturer in the United States is on the verge of closing. The Mid-Continent Nail company, based in Missouri, has already laid off 12 percent of its workforce.”
Harley-Davidson has announced it will move much of its motorcycle production to Mexico to avoid the retaliatory tariffs the EU placed on U.S. goods.
Mid-Continent and Harley-Davidson are small parts of the U.S. economy, but they show what a tariff war can do to workers here.
Historically, the Smoot-Hawley tariff, which went into effect in 1930 and certainly contributed to the severity of the Great Depression, reduced international trade by over 60 percent. Economist Paul Krugman in the June 17 New York Times estimates that the new U.S. tariffs and responses to them could reduce international trade by 70 percent. The 10 million U.S. workers engaged in international trade could face large job losses as a result.
What is indisputable is that prices will rise. Steel and aluminum are used to create a lot of necessities from cans for food to buildings and bridges.
Trump’s tariff war has sentenced U.S. workers to these higher prices, which hit retired people and others on fixed incomes particularly hard, no matter what their impact turns out to be on the overall economy.