What Can We Learn from the 2018 Tariffs?

Who won and who was hurt.

One way to understand the longer-term impact of tariffs is to revisit the most recent example, the 2018 tariffs. What did we learn from 2018, and what should we keep in mind as we enter a period of new tariff proposals?

Here are some case studies to review as we try to understand who “wins” and who “loses.”

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Steel Tariff Case Study

The Trump Administration imposed a 25% tariff on foreign steel in March 2018, citing China's unfair market flooding through subsidized domestic production.

Subsequently, U.S. steel prices rose, and American steelmakers achieved record profits. In 2019, domestic steel production increased by 1.5%, while imports declined by 15%. American steel and iron mills added 4,800 jobs between March 2018 and 2019.

The 2018 steel tariff made U.S. steel manufacturing more profitable for steel producers. However, the tariffs negatively impacted the profitability of firms that use steel as an input. For every 1,000 created in the steel industry, it is estimated that it reduced manufacturing jobs by 75,000.

More reading:

• https://www.nber.org/system/files/working_papers/w26610/w26610.pdf

• https://www.pbs.org/newshour/economy/making-sense/steel-tariffs-hurt-manufacturers-downstream-data-shows

• https://www.nbcnews.com/business/economy/trump-steel-tariffs-raised-prices-shriveled-demand-led-job-losses-n1242695

The Washing Machine Case Study

In early 2018, the administration imposed 20% to 50% tariffs on most imported washing machines. While headlines celebrated the 1,800 new manufacturing jobs created in the market, each job is estimated to have cost American consumers $815,000 in increased prices. There are more efficient ways to support American manufacturing.

Another way of examining the return to the tariff is to ask how much tax revenue was generated and compare it to the increased cost to consumers. It is estimated that the tariffs increased washing machine prices by 125% to 225% of the tariff, resulting in consumers paying $1.5 billion more for washing machines—the tariff generated $82 million in revenue to the government.

More reading:

• https://www.heritage.org/trade/commentary/we-shouldnt-rinse-and-repeat-when-it-comes-costly-washing-machine-tariffs

• https://www.brookings.edu/articles/did-trumps-tariffs-benefit-american-workers-and-national-security/

• https://www.aei.org/carpe-diem/trumps-washing-machine-tariffs-created-1800-us-jobs-but-at-a-yuge-cost-to-consumers-of-820000-job/

• https://www.aeaweb.org/research/washing-machines-2018-tariffs-effect

Retaliation Hurts More

China's retaliatory tariffs created additional employment challenges, impacted American farmers, and required government support. Between 2018 and 2020, the U.S. subsidized farmers with $61 billion to help them withstand Chinese retaliatory tariffs. On the other hand, the U.S. collected only $66 billion in tariffs. Most of the revenue was redirected to support impacted farmers.

The Environmental Working Group's graph above is interactive and shows annual county-by-county subsidy payments since 2014.

More reading:

• https://crsreports.congress.gov/product/pdf/R/R45929

• https://taxfoundation.org/blog/tariffs-trade-war-agriculture-food-prices/

• https://www.ewg.org/interactive-maps/2021-farm-subsidies-ballooned-under-trump/

The Takeaway

Unfortunately, discussing the economics of tariffs has become more political than economic. Tariffs are fundamentally an economic problem that requires an economic solution. They are protectionist policies that protect some at the expense of the majority. Increasing the cost of a product means higher prices to consumers. If the increased cost cannot be passed on to consumers, then the domestic firm takes on lower profits, which usually leads to layoffs.