Voice For Liberty

Tag: Free markets

  • The Employment and Wage Effects of Trump’s Steel Tariffs

    The Employment and Wage Effects of Trump’s Steel Tariffs: A Review of Research Findings

    Executive Summary

    Research on the Trump administration’s 2018-2020 steel tariffs reveals significant negative net employment effects despite modest gains in steel production jobs. While steel workers experienced some wage increases, the broader economic impact included substantial job losses in steel-using industries and higher costs for consumers.

    Background

    The Trump administration imposed tariffs of 25% on steel imports and 10% on aluminum imports in March 2018 under Section 232 of the Trade Expansion Act of 1962, citing national security concerns. These tariffs remained in place through 2020 and have been the subject of extensive economic research.

    Employment Effects

    Steel Production Jobs

    The tariffs had a modest positive effect on employment within the steel production sector itself. Research by Cox and Russ found that tariffs on steel led to an increase of roughly 1,000 jobs in steel production (Econofact, 2020). The latest data on steel production jobs showed roughly 1,000 more jobs in November 2019 than in March 2018 when the tariffs were implemented.

    However, this gain was limited by structural factors in the industry. Even with demand strengthening, the effect on employment in steel production was likely to be muted by technological innovation, as new technologies have allowed steel companies to produce more with fewer workers (PBS NewsHour, 2020).

    Steel-Using Industries

    The employment losses in steel-consuming industries far exceeded gains in steel production. Cox and Russ estimated that increased costs facing U.S. firms due to the Section 232 tariffs on steel and aluminum likely resulted in 75,000 fewer manufacturing jobs in firms where steel or aluminum are inputs into production (Econofact, 2020). This disparity reflects the fundamental economic reality that steel-consuming jobs outnumber steel-producing jobs by 80 to 1 (Tax Foundation, 2024).

    The automotive industry was particularly affected. All three Detroit automakers—General Motors, Ford, and Fiat Chrysler—closed plants in Michigan since January 2018. Both General Motors and Ford reported $1 billion each in increased steel costs in 2018 (NBC News, 2020).

    Net Employment Impact

    When accounting for both job gains and losses, the research suggests a negative net impact. Cox and Russ found that the broader trade war had caused a net loss of 175,000 U.S. manufacturing jobs by mid-2019 (Tax Foundation, 2024). Notably, the steel industry itself continued shedding jobs during the tariff period, employing 1,900 fewer workers than when Trump took office (NBC News, 2020).

    Wage Effects

    Steel Industry Wages

    Workers in the protected steel industry did experience wage benefits. In late 2018, U.S. Steel workers secured a cumulative 14% wage increase over a four-year period (NBC News, 2020). These increases were supported by initially higher steel prices resulting from reduced foreign competition.

    Broader Wage Impacts

    However, the wage effects were not uniformly positive across the economy. Higher steel costs created pressure on wages and employment in downstream industries. Manufacturing costs remained elevated for companies like Ford, which purchases 95% of its steel from domestic suppliers (NBC News, 2020).

    Economic Efficiency Analysis

    Research suggests the job creation achieved through steel tariffs came at enormous cost. Studies indicate that American consumers paid approximately $900,000 in higher prices attributable to the tariffs for every job created in the steel industry (Brookings Institution, 2023). Similarly, tariffs on washing machines cost about $817,000 per job created.

    The Brookings Institution concluded that when economists attempted to add up the net effect of Trump’s tariffs on jobs, any gains in import-competing sectors appeared to have been more than offset by losses in industries that use imported inputs and face retaliation on their foreign exports (Kimbrough & Sala-i-Martin, 2023).

    Academic Consensus

    A March 2018 survey of 43 economic experts by Chicago Booth revealed that 0% thought a U.S. tariff on steel and aluminum would improve Americans’ welfare (Tax Foundation, 2024). This reflects the broad academic consensus that while tariffs may benefit specific protected industries, they typically impose larger costs on the broader economy.

    Conclusion

    The research evidence on Trump’s steel tariffs demonstrates the classic trade-off inherent in protectionist policies: while they can provide benefits to workers in protected industries through higher wages and some job preservation, these gains typically come at the expense of much larger losses in downstream industries and higher costs for consumers. The net employment effect was negative, with job losses in steel-using industries far exceeding gains in steel production.

    References

    Brookings Institution. (2023, June 22). Did Trump’s tariffs benefit American workers and national security? Brookings. https://www.brookings.edu/articles/did-trumps-tariffs-benefit-american-workers-and-national-security/

    Cox, L., & Russ, K. (2020, March 10). Steel tariffs and U.S. jobs revisited. EconoFact. https://econofact.org/steel-tariffs-and-u-s-jobs-revisited

    Kimbrough, K., & Sala-i-Martin, X. (2023). How Trump’s tariffs really affected the U.S. job market. Carnegie Endowment for International Peace. https://carnegieendowment.org/china-financial-markets/2021/01/how-trumps-tariffs-really-affected-the-us-job-market

    NBC News. (2020, October 9). Trump steel tariffs raised prices, shriveled up demand, led to job losses, some Michigan workers say. NBC News. https://www.nbcnews.com/business/economy/trump-steel-tariffs-raised-prices-shriveled-demand-led-job-losses-n1242695

    PBS NewsHour. (2020, February 7). Steel tariffs hurt manufacturers downstream, data shows. PBS NewsHour. https://www.pbs.org/newshour/economy/making-sense/steel-tariffs-hurt-manufacturers-downstream-data-shows

    Tax Foundation. (2024). Trump tariffs: The economic impact of the Trump trade war. Tax Foundation. https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/

  • Trump’s Tariffs

    Trump’s Tariffs

    On the campaign trail, former president Donald J. Trump praises his import taxes on Chinese imports. But he is wrong on the data, and wrong on the economic effects.

    This is Donald J. Trump speaking at a recent campaign event:

    I took on Communist China like no administration in history, bringing in hundreds of billions of dollars pouring right into our Treasury when no other president had gotten even literally 10 cents out of China. Nobody even tried. We took in hundreds of billions of dollars. I gave 28 billion dollars directly to the farmers, and in your case, we gave it also to the New England lobstermen and fishermen.

    (See Donald Trump Holds Final Rally Before N.H. Primary Transcript)

    First, while Trump raised the tariff rate applied to imports from China, the United States had been collecting duties on Chinese imports. The nearby chart illustrates the steep rise after Trump took office, along with a shaded period when Trump claimed the U.S. collected nothing.

    Second, we need to examine who pays these import duties. Trump says China pays. Nearly everyone else — from left to right, liberal to conservative — says that Americans pay and that the U.S. economy is harmed.

    In an interview, Howard Gleckman of the left-leaning Tax Policy Center explained (emphasis added):

    A tariff is a tax on imported goods. Despite what the President says, it is almost always paid directly by the importer (usually a domestic firm), and never by the exporting country. Thus, if the US imposes a tariff on Chinese televisions, the duty is paid to the US Customs and Border Protection Service at the border by a US broker representing a US importer, say, Costco.

    Later, in the same interview:

    Who really pays the tax on imported goods? The answer, I am sorry to say is, it depends.

    A business will, if it can, pass its higher after-tax costs on to consumers. Thus, the price of Chinese TVs sold in the US may rise rapidly. But the firms selling those TVs eventually will face competition from companies that sell lower-cost TVs made in a third country that is not subject to the import tax. In that case, some of the tax may be paid by the firm’s shareholders in the form of lower profits or by its workers in the form of lower compensation. Or, the firm may switch to a non-Chinese supplier and, in effect, nobody will pay the tariff.

    What is the effect?

    In the short run, higher prices for imported goods will reduce consumption of those goods. But in the longer term, the decline in competition from foreign products makes domestic firms less efficient. And less competition will result in higher prices, not just for those goods subject to the tariff but for competing goods that are not—such as those made domestically. In the case of Trump’s tariffs on China, that means US consumers will pay somewhat higher prices.

    (See: TaxVox: Business Taxes)

    The Tax Foundation, which is not left-leaning, reports:

    When the U.S. imposes tariffs on imports, U.S. businesses directly pay import taxes to the U.S. government on their purchases from abroad.

    Noting that President Biden has continued the Trump tariffs:

    Historically, economists have generally found that foreign firms have absorbed some of the burden of tariffs by lowering their prices, meaning domestic firms and consumers haven’t borne the entirety of higher tariffs in the past. In contrast to past studies, however, new studies have found the Trump-Biden tariffs have been passed almost entirely through to U.S. firms or final consumers.

    This article reports several recent studies examining recent tariffs. One looked at tariffs on “washing machines, solar panels, aluminum, steel, and goods from the European Union and China imposed in 2018 and 2019,” finding:

    They found that U.S. firms and final consumers bore the entire burden of tariffs and estimated a net loss to the U.S. economy of $16 billion annually, including more than $114 billion in losses to firms and consumers, offset by small gains to protected producers and revenue gains to the government.

    (Who Really Pays the Tariffs? U.S. Firms and Consumers, Through Higher Prices)

    In another article, Tax Foundation notes:

    Historical evidence and recent studies show that tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output. For example, the effects of higher steel prices, largely a result of the 2002 Bush steel tariffs, led to a loss of nearly 200,000 jobs in the steel-consuming sector, a loss larger than the total employment in the steel-producing sector at the time.

    (See Tariffs and Trade)

    In testimony to Congress, Bryan Riley of the conservative National Taxpayers Union, wrote:

    There is overwhelming evidence that U.S. trade barriers weaken our internal economy.

    He referenced a 1983 investigation conducted in the midst of the Cold War:

    Trade restrictions impose hidden costs on the economy. They are not included in the appropriations of elected officials, they show up on no agency’s budget, and they tend to be overlooked when assessing the impact of the broader policy of which they are a part. But hidden or not, these costs act as a drag on the rest of the economy, eroding the industrial base in other sectors, and undermining our ability to sustain a balanced defense effort in a national emergency.

    He also mentioned a letter signed by more than 1,100 U.S. economists, including 15 Nobel laureates. They wrote:

    We are convinced that increased protective duties would be a mistake. They would operate, in general, to increase the prices which domestic consumers would have to pay. A higher level of protection would raise the cost of living and injure the great majority of our citizens.

    It also explains the two-way nature of trade between nations:

    Our export trade, in general, would suffer. Countries cannot permanently buy from us unless they are permitted to sell to us, and the more we restrict the importation of goods from them by means of ever higher tariffs the more we reduce the possibility of our exporting to them. Such action would inevitably provoke other countries to pay us back in kind by levying retaliatory duties against our goods.

    Further, Riley notes that trade is good for peace:

    Many studies have been conducted on the relationship between trade and peace. One recent report concluded: “… trade alliances give other states more of an incentive to defend allies that come under attack. That line of thinking seems to play out in the data. As the models predict, countries are less likely to be at war with their trading partners, and countries with more trading partners are less likely to go to war in the first place.”

    (See NTU Free Trade Initiative Director Bryan Riley Testimony to the Department of Commerce on New Auto Industry Tariffs)

  • Say no to special tax treatment, again

    Say no to special tax treatment, again

    In Kansas, a company seeks to avoid paying property taxes, again.

    In a bill presented in the Kansas Legislature, the owner of health clubs seeks to avoid paying property taxes. The same company and its owner have tried this before. In 2014, I explained how granting this exemption was a bad idea.

    What has changed since then? This exemption is still a bad idea for reasons of public policy. Additionally, Brandon Steven, the owner of the health clubs, plead guilty to a gambling charge and forfeited one million dollars in earnings. The companies also owe a lot of the tax it seeks to avoid.

    Following, my article from March 2014.

    Special interests struggle to keep special tax treatment

    When a legislature is willing to grant special tax treatment, it sets up a battle to keep — or obtain — that status. Once a special class acquires preferential treatment, others will seek it too.

    When preferential tax treatment is granted, that is, when government says someone doesn’t have to pay taxes, it’s usually the case that someone else has to pay. That’s because governmental bodies usually don’t reduce their spending in response to the tax breaks they give. Spending stays the same (or rises), but someone isn’t paying their share. Therefore, others have to make up the missing tax revenue.

    In Kansas, SB 72 has been passed by the Senate and may be considered by the House of Representatives. This bill would, according to its supplemental note “provide a property or ad valorem tax exemption on all property owned and operated by a health club.” In effect, this bill would give all health clubs the same property tax exemption that the YMCA enjoys on its fitness centers.

    When the legislature uses tax law to achieve goals, the statute book becomes complicated as illustrated by the many special sales tax exemptions in Kansas. K.S.A. 79-3606 details the special sales tax exemptions that the legislature has granted. In order to list them all, the statute has sections labeled from (a) through (z), then from (aa) through (zz), then from (aaa) through (zzz), and finally from (aaaa) through (gggg).

    Some of these sections are needed and valuable, such as the section that exempts manufacturers from paying sales tax on component parts and ingredients used to build final products. It is supposed to be a retail sales tax, after all.

    But then there are sections like this: “(vv) (18) the Ottawa Suzuki Strings, Inc., for the purpose of providing students and families with education and resources necessary to enable each child to develop fine character and musical ability to the fullest potential.”

    I have no doubt that this organization is engaged in useful work and that there should be more of this. But what about all the other organizations engaged in similar activities, and which are undoubtedly as deserving of the same tax break? Should they be penalized because they did not have the temerity to ask?

    In the area of property taxation, we find many similar circumstances, where two businesses that seem to be similarly situated are treated very differently by the tax collector.

    For example, Wesley Medical Center, one of Wichita’s principal hospitals, is Wichita’s second-largest property taxpayer, with taxable assessed value representing 0.90 percent of the total of such property in Wichita.

    One hospital has many millions in property, but is not taxed on that property.
    One hospital has many millions in property, but is not taxed on that property.

    But another large Wichita Hospital, Via Christi Hospital on St. Francis, has assets valued at over $115 million, yet pays no property tax. For the mill levy rate that applies to its address, this represents about $3.5 million in property tax savings. (It did pay a Sedgwick County Solid Waste User Fee of $8.91.)

    How can we meaningfully distinguish between Wesley and St. Francis Hospitals? Does one provide more charity care than the other? Does the non-profit hospital charge lower rates? (I’d be surprised if so.) Does St. Francis impose less of a burden on city and county resources such as fire and police protection than does Wesley? Since Wesley attempts to earn a profit and St. Francis purportedly does not, does that make Wesley evil and St. Francis saintly? Why do we exempt St. Francis from millions of property tax, yet insist it pay $8.91 in solid waste user fees?

    A scene from a non-profit retirement living center.
    A scene from a non-profit retirement living center.

    We find other examples: A luxury retirement community (Larksfield Place) with real property valued at $27,491,440 pays no property tax, except for $5.95 in the solid waste user fee. Less than a mile away, Sedgwick Plaza, a senior living center, has a valuation of $5,067,350 for its real property, and was billed $70,080.51 in property tax, including its solid waste user fee of $972. Despite — or perhaps due to — its non-profit status, Larksfield Place is able to provide its president a salary of over $130,000.

    A Goodwill thrift store on West Central in Wichita has real property valued at $696,600, but paid no property taxes except for $5.94 solid waste user fee. On the other side of town, a small thrift store on East Douglas has real property valued at $113,800. It pays $3,437 in property tax, including its solid waste user fee.

    These differences in what seem to be properties in similar situations are not justifiable under any theory of taxation, one of which is that similar situations are taxed similarly. The YMCA’s fitness centers are difficult to distinguish from others in Wichita — except for the YMCA’s rarefied tax-exempt status.

    The slippery slope

    Here’s the danger: Should SB 72 pass and all health clubs start enjoying the same tax privileges as the YMCA, shouldn’t we then expect to see for-profit hospitals like Wesley Medical Center ask to be relieved of their tax burden, using the same logic? If the legislature were to deny that request, how could it possibly explain its reasoning to citizens?

    In defense of its tax exempt status, the YMCA says it engages in many charitable activities. I’m sure that’s true, and we’d like to keep those activities. Perhaps the YMCA would consider separating its fitness centers from the rest of its operations. Separate the business-like activities from the charitable. The YMCA can use the “profits” from its fitness centers to finance its charitable activities. To the extent it does that, it will avoid paying state and federal income tax on its profits.

    But property taxes are something different from income taxes. The YMCA benefits from all the things the city (and other taxing jurisdictions) provide, ranging from public safety to schools to security for the mayor’s trip to Ghana. When it doesn’t pay its share, others have to pay. That means that others — you and me, for example — have less money available for the charitable (and other) activities they feel important. Even worse, I am forced to subsidize the charitable activities that the YMCA (or the Methodist Church, Boy Scouts, Girl Scouts, etc.) chooses to fund. This is especially true in Kansas, where low-income households pay a regressive sales tax on food.

    When the YMCA — or any non-profit, for that matter — escapes taxation that other similar organizations must pay, it means that we all subsidize the charitable activities of these non-profits. It sustains a system in which special interest groups lobby to keep their advantages, and those who are not similarly blessed spend lavishly on campaign contributions and other lobbyists. Even when the organization is widely respected, as is the YMCA, this is wrong. It leads to cynicism as citizens realize that our laws are not applied uniformly, and that special interests feel they can buy their way to special treatment.

    For their business-like activities, the YMCA, Larksfield Place, and Goodwill thrift stores should pay property taxes so they shoulder the same burden that the rest of us struggle under. That will spread the cost of government fairly, and let ordinary people themselves decide how to contribute their after-tax dollars.

  • From Pachyderm: Robert L. Bradley, Jr.

    From Pachyderm: Robert L. Bradley, Jr.

    From the Wichita Pachyderm Club: Robert L. Bradley, Jr. He is CEO and Founder of Institute for Energy Research, visiting fellow at the Institute of Economic Affairs in London, and an adjunct scholar at both the Cato Institute and the Competitive Enterprise Institute. His topic at the Pachyderm Club was “The Contra-Capitalist Corporation (In Search of Heroic Capitalism).” This audio recording was made on November 2, 2018. The accompanying visual presentation may be viewed here.

    Shownotes

  • WichitaLiberty.TV: Sedgwick County and Wichita issues

    WichitaLiberty.TV: Sedgwick County and Wichita issues

    In this episode of WichitaLiberty.TV: The end of a Sedgwick County Commission election, the Wichita Eagle editorializes on school spending and more taxes, and Wichita Mayor Jeff Longwell seems misinformed on the Wichita economy. View below, or click here to view at YouTube. Episode 207, broadcast August 26, 2018.

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  • WichitaLiberty.TV: Larry Reed, Foundation for Economic Education

    WichitaLiberty.TV: Larry Reed, Foundation for Economic Education

    In this episode of WichitaLiberty.TV: Lawrence W. Reed, President of Foundation for Economic Education, joins Bob and Karl to discuss the connection between liberty and character, our economic future, and I, Pencil. View below, or click here to view at YouTube. Episode 191, broadcast April 7, 2018.

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  • WichitaLiberty.TV: Dr. Tom G. Palmer and the causes of wealth

    WichitaLiberty.TV: Dr. Tom G. Palmer and the causes of wealth

    In this episode of WichitaLiberty.TV: Dr. Tom G. Palmer of Atlas Network joins Bob Weeks to explain why the usual approach to foreign aid isn’t working, and what Atlas Network is doing to change the lives of the poor across the world. View below, or click here to view at YouTube. Episode 189, broadcast March 24, 2018.

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  • WichitaLiberty.TV: After the Kansas tax increases

    WichitaLiberty.TV: After the Kansas tax increases

    In this episode of WichitaLiberty.TV: Jonathan Williams, chief economist at American Legislative Exchange Council (ALEC), joins Bob Weeks and Karl Peterjohn to discuss what ALEC does, and then topics specific to Kansas. View below, or click here to view at YouTube. Episode 159, broadcast July 30, 2017.

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  • WichitaLiberty.TV: The regulatory and administrative state

    WichitaLiberty.TV: The regulatory and administrative state

    In this episode of WichitaLiberty.TV. Fred L. Smith, Jr. is the founder of the Competitive Enterprise Institute. He explains the problems with excessive regulation and a large administrative state. Episode 145, broadcast April 2, 2017. View below, or click here to view at YouTube.

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