Officially it is called a tariff. But in reality, it is just another federal tax.
President Donald Trump says that the tariffs he has imposed during the past year on Canada, Mexico and China have boosted the domestic steel industry, but experts say in the end the American consumer pays the bill in the form of higher prices for what they buy.
Trump declared Tuesday that “we’re winning” the international trade war, even as analysts say his apparent willingness to be the first president since Herbert Hoover in 1930 to embrace protectionism has roiled the stock market, caused the 401Ks of everyday Americans to slip, and crippled the exports of Ohio soybean farmers.
“I can say pretty confidently that if this continues, it will be bad for the economy,” said Trevor Collier, a professor of economics at the University of Dayton. “What’s happening in the stock market is showing that.”
Jay Corrigan, a professor of economics at Kenyon College said “trade makes us richer – on average – as a country and a trade war which reduces trade makes us poorer on average as a country,” adding that some American industries such as producers of steel or washing machines thrive with tariffs.
Even as Trump acknowledged Monday “there can be some retaliation” from China in the form of higher tariffs on American exports, he said “it can’t be very, very substantial by comparison,” Ohio stands to be a major loser in a trade war.
Last year, Ohio companies and farmers exported a record $54.3 billion worth of goods, with China the third-largest trading market behind Canada and Mexico. Only eight states last year exported more goods than Ohio, while China is the state’s third-largest export market.
The mounting risks faced by Ohio farmers and manufacturers led to Republican Senator Rob Portman and Democratic Senator Sherrod Brown to issue statements that amounted to “yes, but.”
Yes, they insist China has taken advantage of U.S. trade policies to flood the American market with low-cost products, with Brown asserting the administration needs to negotiate an agreement with China that “contains the meaningful long-term structural changes needed to stop China’s cheating and support Ohio workers.”
But, Brown said, he has warned the administration “several times that tariffs should be used as a temporary tool, not a long-term trade policy.”
In a conference call Tuesday with Ohio reporters, Portman said he supports “being tougher on China because they are not playing by the rules,” but pointedly added “the escalation of tariffs without an agreement will hurt our economy and jobs and wages and everything else.”
Trump has called himself a “Tariff Man” and has boasted trade wars are easy to win. But in a series of tweets and public statements, he has confused voters and his own advisers with his claim last week tariffs are “paid for mostly by China.”
Tariffs are in essence are a tax and contrary to what Trump has said, they often are paid by the company which imports a product. The tax is sent to the U.S. Treasury Department, but the importer almost always passes the cost on to the consumer.
A glaring example was the rise in the price of washing machines after the administration imposed tariffs on South Korea’s exports of washing machines as well as steel imports from Canada and Mexico. A study last month by economists from the University of Chicago shows that the price of washing machines have risen by 14 percent.
“The president is just wrong when it comes to who is paying the tariffs,” said Edward Hill, a professor of economics at the John Glenn College for Public Policy at Ohio State University. “That check is not written by a Chinese producer, but by an American customer.”
An even greater danger to Americans is that China has retaliated against key sectors of the U.S. economy. Last year after Trump imposed the first round of tariffs on Chinese exports, China hiked tariffs on agricultural products, a move which has hammered state farmers who sold just $157 million worth of soybeans to China last year compared to $1.15 billion in 2016.
“As I hear our members talk, they’re still fairly favorable toward President Trump and his policies, but at the same time they want this trade war resolved as soon as possible,” said Joe Cornely, a spokesman for the Ohio Farm Bureau.
But Cornely added that farmers “are not bashful” about warning elected officials that the trade war “hurts and we need to see it fixed as soon as possible.”
The last time the United States resorted to major tariffs was 1930 when President Hoover signed into law a massive tariff measure sponsored by Republican Senator Reed Smoot of Utah and Republican congressman Willis Hawley of Utah.
Whether it was coincidence or not, industrial production plunged dramatically, according to a study by the Federal Reserve Board in St. Louis, while international trade foundered, prompting economists to cite the law as one of the reasons for the catastrophic collapse of the U.S. economy.
Trump believes that the U.S. economy is so strong that Chinese leader Xi Jinping will yield to pressure and agree to a trade agreement more favorable to the United States.
“We are, again, in a very, very strong position,” Trump told reporters Tuesday. “They want to make a deal,” adding “our economy is fantastic; theirs is not so good. We’ve gone up trillions and trillions of dollars since the election; they’ve gone way down since my election.”
Oh one other thing that today’s politicians should remember: While voters may have cheered on tariffs in 1929, they quickly changed their mind. In 1932, Hoover, Smoot and Hawley all lost bids for re-election.
(Jessica Wehrman of the Washington Bureau contributed to this story.)
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