The Trouble with tariffs
Tariff is a fancy name for tax. When enacted, Americans pay extra for foreign-made goods. But that’s not all. Tariffs cause a falling dominoes-like cascade of negative consequences which include retaliatory tariffs on American exports, higher prices on both foreign- and American-made goods, loss of American jobs, and a decline in American Gross Domestic Product (GDP). In Colorado, $276.9 million in exports and thousands of jobs are at risk from retaliatory tariffs levied in response to the Trump Administration’s aluminum and steel tariffs according to a new report by the U.S. Chamber of Commerce.
Trade is important to Colorado’s economy. Our state exported some $8 billion in manufactured goods and commodities last year. Global trade supports more than 733,000 Colorado jobs. When other countries impose tariffs on Colorado exports in retaliation for U.S. tariffs, potential consumers in those countries will buy fewer Colorado made goods. Mexicans will buy less Colorado pork and cheese. Canadians will buy less Colorado bread and other baked goods, aluminum manufactured goods, and soap products. The Chinese will cut back on Colorado aluminum scrap, meat byproducts, and vehicles. Consumers in the European Union will buy fewer Colorado-made motorcycles and bottles of whiskey. The loss of revenue will negatively impact Colorado companies, farms, and ranches. This will mean diminished profits, lower wages, fewer jobs, and reduced economic growth for the whole state.
Still other Colorado companies will suffer. Companies that buy foreign-made steel and aluminum to make finished goods will be adversely impacted by the commodities’ higher prices. The higher prices of these goods will then increase production costs for other manufacturers. Colorado breweries, for example, will pay more for aluminum cans because of the tax on imported aluminum. In turn, domestic and foreign consumers will pay more for Colorado beer and may forgo it for cheaper brew. Loss of sales will impact the growth and viability of Colo- rado beer companies, employees’ jobs and wages, and the communities that are supported by the businesses. Distributors, wholesalers, and retail outlets also stand to lose revenue.
This unfortunate scenario has already played out at Mid-Continent Nail Corporation. The American company recently laid off 60 of its 500 workers and may lay off the remainder later this year. The tariff on Mexican steel increased Mid-Continent Nail’s production costs and forced the company to raise the price of nails. Customers turned to cheaper products and the American company lost business. Nail orders are down by two-thirds. The loss of such a business in a small city like Popular Bluff, Mo., population 17,000, is bound to hurt the whole community.
The Tax Foundation predicts the tariffs will result in a loss of 48,585 full time American jobs as well as a drop in wages and U.S. GDP.
Meanwhile prices will increase not only for foreign-made goods and American-made goods crafted with imported materials, but also for homegrown American goods. If President Trump foists a 25 percent tariff on foreign made cars, as he has threatened, American car buyers will likely pay $4,000-$5,000 more per car, even American-made cars. That’s because American car makers manufacture automobiles all over the world. Tesla is the only American car manufacturer that does not import automobiles. Ford imports a fifth of its vehicles while General Motors imports more than a third. Rather than raise prices just on their foreign-made models, American companies will spread the extra cost out among all of its models. Thus all American car buyers will pay more.
Tariffs create a lose-lose situation for everyone – American business owners, employees, and shoppers. The only exceptions are U.S. producers of steel, aluminum and a few other privileged manufacturers. Surely these businesses can become more competitive without taxing the rest of us.