It’s entirely predictable that trade sanctions are costly to the country that imposes them. Yet politicians can be persuaded to support them in the name of saving American jobs and getting “tough” with countries perceived to be a problem.
We see this in the case of President Barack Obama and the tariffs, or taxes, on tires imported from China. Here’s what The Peterson Institute for International Economics said in its report US Tire Tariffs: Saving Few Jobs at High Cost:
However, our analysis shows that, even on very generous assumptions about the effectiveness of the tariffs, the initiative saved a maximum of 1,200 jobs. Our analysis also shows that American buyers of car and light truck tires pay a hefty price for this exercise of trade protection. According to our calculations, explained in this policy brief, the total cost to American consumers from higher prices resulting from safeguard tariffs on Chinese tires was around $1.1 billion in 2011. The cost per job manufacturing saved (a maximum of 1,200 jobs by our calculations) was at least $900,000 in that year. Only a very small fraction of this bloated figure reached the pockets of tire workers. Instead, most of the money landed in the coffers of tire companies, mainly abroad but also at home.
The additional money that US consumers spent on tires reduced their spending on other retail goods, indirectly lowering employment in the retail industry. On balance, it seems likely that tire protectionism cost the US economy around 2,531 jobs, when losses in the retail sector are off set against gains in tire manufacturing. Adding further to the loss column, China retaliated by imposing antidumping duties on US exports of chicken parts, costing that industry around $1 billion in sales.
It’s not like this hasn’t happened before. When President George W. Bush imposed tariffs on imported steel, the result was similar. The Consuming Industries Trade Action Coalition found that steel trade protectionism resulted in the loss of nearly 200,000 American jobs, and cost approximately $4 billion in lost wages over ten months. A further conclusion was that “more American workers lost their jobs in 2002 to higher steel costs than the total number employed by the U.S. steel industry.”
Instead of these presidents bowing to the very concentrated special interests that benefit from trade protectionism, we should embrace trade with other countries.
But it’s easy to beat up on certain countries when jobs are lost, blaming the problem on foreigners. Mitt Romney should take this advice, as the Wall Street Journal recently editorialized: “This China-bashing is especially odd for Mr. Romney, who professes elsewhere that he wants to expand trade because it will create jobs. So trade is good for America except when it is conducted by ‘cheaters’ who happen to sell more of some goods and services to us than we sell to them. This is called mercantilism, not free trade.”