Ed Gresser, PPI’s Vice President and Director for Trade and Global Markets, is focused on who pays U.S. tariffs in his trade fact of the week. He begins with a brief explanation of tariffs since there have been some “puzzling assertions that foreigners might somehow pay tariffs.” Gresser, who was testifying in front of the Joint Economic Committee later that day, used his fellow witnesses’ testimony to help illustrate the three economic results of raising the U.S. tariff rate.
Those three results?
- Prices rise for families.
A series of studies earlier this year — including from Erica York of the Tax Foundation and Brendan Duke of the Center for American Progress, both also appearing at this afternoon’s hearing — suggest that a 10% tariff plus a higher rate on Chinese-made goods would cost families $2,200 to $6,000 a year. That’s a jump of at least 10% from the $25,150 the Bureau of Labor Statistics found average families spending on goods last year. The costs of this type of tax increase fall most heavily on low-income families and least heavily on wealthy families — naturally, since lower-income households spend more of their income than average buying goods, and top-end households less.
- Retail, manufacturing, agriculture, construction, and restaurants – the goods-using parts of the U.S. economy – will decline when compared with the rest of the U.S. economy.
This is because, all else equal, if you tax one part of the economy but not another, the taxed part gets smaller. ... As tariffs on energy, metals, paint, fertilizer, and other inputs raise factory and farm production costs, U.S. manufacturers and agriculture will lose ground to foreign rivals. Construction firms and retailers, meanwhile, lose sales as home prices rise and sticker shocks hit groceries, drug stores, and clothing aisles. … these goods-using parts of the economy gets smaller relative to businesses who spend less on goods — say, real estate and financial services firms — who put much more of their money into investment and services.
- Exporters suffer multiple harms.
Most obviously, countries hit with tariffs — especially in violation of trade agreements – often retaliate. Exporters are then the “cannon fodder” of trade wars — the first pushed into the front line, and the first to fall. … Less obviously, many export losses come without retaliation at all. As we noted earlier this month, the $141 billion in Texas, New Mexico, and Arizona exports flowing south to Mexico last year included tens of billions of dollars in auto parts, semiconductors, and other specialized products sold to Mexican assembly plants. Tariffing or blocking the cars and appliances they produce means they will shrink; then, in turn, they place fewer orders with their Phoenix, Rio Rancho, El Paso, and Houston suppliers, and they shrink too.