Why Economists Hate Trump's Tariff Plan | WSJ

Summary

The Wall Street Journal delves into the controversial economic strategies of former President Donald Trump, specifically his penchant for tariffs. The video highlights historical and modern examples of tariffs, such as the 'chicken war' following World War II and Trump's tariffs on washing machines, steel, and aluminum. While these tariffs aim to boost domestic production and economic independence, they often result in higher consumer prices and job losses in downstream industries. Despite mixed results, the Biden administration has maintained many of Trump's tariffs, suggesting a significant shift in global trade strategies. The looming question remains whether Trump's bold tariff proposals will isolate the US economically or pressure adversarial nations like China to alter their trade behaviors.

Highlights

• The 'chicken war' led to long-lasting tariffs that affect trade to this day. 🐔
• Trump's washing machine tariffs increased prices for both imports and domestic products. 🧼
• Steel and aluminum tariffs were intended to curb China's trade practices but had mixed results. 🏗️
• Tariffs created jobs but cost consumers more, raising concerns among economists. 📊
• Despite economic downsides, many of Trump's tariffs were maintained by the Biden administration. 🔄
• Studies caution that Trump's proposed tariffs could cost American households dearly. 💸
• Retaliatory tariffs from other countries could further shrink US exports. ⚔️

Key Takeaways

• Tariffs aim to protect specific industries but often hurt consumers by raising prices. 📈
• The 'chicken war' serves as a historical example of the unintended consequences of tariffs. 🐔
• Trump's tariffs on washing machines increased prices but also created jobs. 🛠️
• Tariffs are hard to remove once implemented, sometimes lasting decades. ⏳
• Economists argue there are more efficient ways than tariffs to boost employment. 🤔
• Tariffs are often used as bargaining chips in international negotiations. 🤝
• Trump's proposed tariffs could significantly impact the US economy and global trade dynamics. 🌐

Overview

Tariffs often bring unintended consequences, as illustrated by the 'chicken war', where a tariff imposed on American chicken by the European Union led to a lasting trade impact on German trucks and influenced consumer prices. This historic event sets the stage for understanding the complexities and ripple effects of tariffs in global trade.

Under Trump's presidency, tariffs became a tool to encourage domestic production, as seen with washing machines and the steel industry. While beneficial for some local jobs, these tariffs resulted in increased consumer prices, sparking debates among economists regarding their efficacy and the overall cost to the American public.

As global trade dynamics and geopolitical relations shift, tariffs remain a contentious tool in economic policy. With proposals for substantial tariffs on Chinese imports, Trump's approach raises questions about the long-term economic implications for both the US and its trading partners. The potential for retaliatory measures and increased domestic prices poses significant risks amid an already complex global trade environment.

Chapters

• 00:00 - 01:30: Introduction to Trump's Tariff Plan and the Chicken War The chapter titled 'Introduction to Trump's Tariff Plan and the Chicken War' begins by hinting at the central role tariffs play in Donald Trump's economic strategy. The narrative then shifts to a historical anecdote, known as the 'Chicken War,' which took place in post-World War II West Germany. During this period, American chicken became extremely popular, with U.S. farmers poised to sell over $50 million worth of poultry, equivalent to half a billion dollars today. This influx of American chicken agitated European farmers to the extent that the organization, which would evolve into the European Union, imposed a tariff on U.S. chicken exports to protect their local farming interests, marking an early instance of trade tensions and protectionism.
• 01:30 - 03:30: How Tariffs Affect Prices and Jobs The chapter discusses the impact of tariffs on prices and jobs, illustrated by the example of US tariffs on chicken and trucks. A five-pound chicken's price increased from $1.60 to $2.25, leading to a drop in imports and anger among US chicken farmers and politicians. In retaliation, the US imposed a 25% tariff on German trucks, significantly affecting Volkswagen's sales in the US. As a result, German consumers faced higher chicken prices.
• 03:30 - 05:30: The Impact of 2018 Tariffs and Job Creation The chapter delves into the impact of the 2018 tariffs on job creation and consumer choices in America. It highlights that tariffs tend to reduce the variety of products available, in this case, truck options for Americans, and suggests that they more often hurt consumers while aiming to protect specific industries or alter international behavior. The narrative discusses how tariffs, which had not been a significant part of trade policy for decades, were reintroduced as a key component of economic strategy under former President Donald Trump, who is quoted as describing this as 'economic nationalism' or 'America first.' The chapter explores these themes in the context of America's economic policies and their global implications.
• 05:30 - 08:00: Continuation of Tariffs Under Biden Administration This chapter discusses the application and impact of tariffs under the Biden administration, spotlighting the historical context and policy shifts from the previous administration led by President Trump. It begins with a focus on tariffs' role as a tool in America's economic strategy, underscoring a change in perspective about their usefulness. The chapter recounts the 2018 imposition of tariffs by President Trump on imports such as washing machines, which obligates US importers to pay tariffs to the government, aiming to protect domestic jobs and industries.
• 08:00 - 10:30: Trump's Proposed Tariff Plan and Its Potential Impact This chapter discusses the potential impact of Trump's proposed tariff plan, highlighting how tariffs can affect consumer prices. It explains that tariffs are intended to reduce demand for imported goods by increasing their prices, thereby providing an opportunity for domestic producers to increase their market share. However, this can lead to higher prices for both imported and domestically produced goods. The chapter uses the example of washing machines to illustrate that after tariffs were implemented, prices for both imported and U.S.-made washing machines rose, contrary to the belief that domestic producers would keep their prices steady.
• 10:30 - 12:30: Geopolitical Environment and Future of Tariff Policies The chapter discusses the indirect effects of tariffs on product prices, using dryers as a case study. Despite dryers not being included in the tariffs, their prices increased due to the interconnected nature of appliance purchases, as they are often sold with washers, which were subject to tariffs. The imposition of these tariffs wasn't entirely negative, as it led to significant job creation, with approximately 1,800 jobs being generated by foreign companies like Samsung and LG opening manufacturing plants in the United States. Additionally, the government collected $82 million annually from these tariffs. However, the downside was the substantial cost to consumers, who ended up paying an additional $1.5 billion due to the resultant price increases.

Why Economists Hate Trump's Tariff Plan | WSJ Transcription

• 00:00 - 00:30 - [Speaker] Before we get into tariffs,- - The heart of the Donald Trump economic plan. - [Speaker] We should talk about the chicken war. - The chicken war is a cluckin' good story. - [Speaker] In post World War II, West Germany, people started eating a lot of chicken, specifically American chicken. Midway through 1962, US farmers were on track to sell more than $50 million worth, half a billion in today's money. This made European farmers mad. So the organization that later became the European Union put a tariff on chicken
• 00:30 - 01:00 A five pound chicken that started as $1.60 became $2.25. Imports quickly dropped. US chicken farmers and politicians were furious. - And we thought, Germany's our big market for chicken. And so if we hurt the Germans, maybe we'll get them to change their mind on chicken. - [Speaker] So the US put a 25% tariff on trucks like Germany's Volkswagen and it worked. Their truck sales in the US fell by half, and they never really recovered. Meanwhile, Germans paid more for their chicken,
• 01:00 - 01:30 and Americans had fewer truck options. It's kind of a perfect example of what tariffs do. Hurt consumers while protecting very specific industries or attempt to get countries to change their behavior. While they haven't been a large part of trade policy in decades, former President Donald Trump wants to change that. - Some might say it's economic nationalism. I call it common sense. I call it America first. - President Trump has really sort of brought a lot
• 01:30 - 02:00 of people out to think that tariffs might be something that's useful in America's economic arsenal in a way that hasn't been used in the past. - [Speaker] Here's how tariffs work and what Trump's proposals would do. Let's start in 2018 when President Trump put tariffs on- - Washing machines. We're going to benefit our consumers and we're gonna create a lot of jobs. - [Speaker] Since then, whenever a washing machine is imported to the US, the company on the US side doing the importing pays a tariff to the US government.
• 02:00 - 02:30 - Their margins are pretty low. They've gotta pass that price on to consumers who ultimately pay it. That's the whole point in some sense, to reduce demand for those goods and create space for domestic producers. - [Speaker] After the tariffs, not only did the price of imported washing machines go up, so did the ones made in the US. - There's this myth out there that if we tax imports, domestic producers won't change their prices. And that's not the case. You're creating more demand for them. - [Speaker] So naturally the price goes up. And it wasn't just washers.
• 02:30 - 03:00 Dryers went up in price too, even though they weren't part of the tariffs. - Usually it's the case, if you buy a washer, you buy a dryer. So even though dryers weren't directly affected by the tariff, they were indirectly affected by the shift in demand. - [Speaker] Now, it wasn't all bad. These tariffs did- - Create a lot of jobs. - [Speaker] About 1,800, mostly from those foreign companies like Samsung and LG opening plants in the US and a study found the US collected $82 million annually. But because of those price increases, it cost consumers 1.5 billion more.
• 03:00 - 03:30 So they basically paid $815,000 per job. - This is a very expensive job creation program. And so that's one another reason why economists don't like tariffs. They're much more cost effective, more efficient ways of increasing employment in those industries. - [Speaker] These weren't the only tariffs Trump created in 2018. The big ones were on- - Steel and aluminum. - Those were really designed to punish China for its transgressions of international trade rules.
• 03:30 - 04:00 - [Speaker] Also for national security. They're used to make a lot of military equipment, but also everyday things like cars. - All the industries that use steel have to pay the higher price that squeezes their profit margins. And it also puts them at a competitive disadvantage against foreign producers of those same goods who don't have to pay those inflated costs for their inputs. And so a lot of studies have shown that you lose jobs as many if not more jobs in those downstream industries as you gain in the upstream industries
• 04:00 - 04:30 that are being protected by the tariffs. - [Speaker] Many studies on the 2018 tariffs found some pros, some cons. Manufacturing jobs, which were on the decline didn't increase, but they did level out. The overall economy lost jobs mostly in those downstream industries, and the cost of the tariffs were passed on to US companies and consumers. So not great for the economy, but it did motivate US companies to move out of China and made supply chains more resilient. But it didn't change much of China's behavior
• 04:30 - 05:00 and in many ways they became more aggressive. But here's the thing, even with all the economic downsides, a review by the Biden administration suggested Trump's tariffs should remain and the administration should add or increase them, which they did. - Once tariffs get in place, there are two factors that sort of keep them in place for some time. - First of all, they're gonna be domestic interest groups that have a stake in seating those tariffs maintained 'cause they like the extra market share that they've gained as a result of those tariffs.
• 05:00 - 05:30 And second of all, tariffs are a bargaining chip. So why would we sort of unilaterally get rid of these, even if there's some economic benefits when we might use it in some negotiations down the road, - [Speaker] Tariffs are really hard to remove. It's why 60 years later there's still a 25% tariff on trucks, even though US chicken farmers no longer care about selling in Europe. - So we're still living with the legacy of the chicken war. So that's sort of another lesson of history is you have to be careful about imposing these tariffs because you think you're doing it
• 05:30 - 06:00 for short term strategic reasons or you're just helping out this industry temporarily. But they can last for decade upon decade upon decade. - [Speaker] Tariff policy is kind of old. Even by the chicken war, they were only imposed on around 7% of US imports. Trump's plan for a second term is to bring them back dramatically. - This is the policy that built this country and this is the policy that will save our country. - [Speaker] He's proposing a 60% tariff on everything from China and a 10 or even 20% on every importer
• 06:00 - 06:30 from every other country. - Countries are gonna finally, after 75 years, pay us back for all that we've done for the world. - [Speaker] Multiple independent studies looked at the possible effects. One found it would cost the average American household $1,700 from higher prices. Another found it could cost more than 684,000 jobs. And they don't factor in how domestic goods might get more expensive or retaliatory tariffs from other countries. - They're not gonna take that this lying down.
• 06:30 - 07:00 They're not going to change their behavior in some way to appease the administration that imposes such tariffs. They're going to retaliate. So not only will US import shrink, but US exports will shrink as well. - [Speaker] Trump wants to use these tariffs as a revenue stream for the US to pay for tax cuts. - Whereas tariffs on foreign countries go up, taxes on American workers and families come down. - [Speaker] Studies found his proposal would likely bring in around a quarter of a trillion dollars per year,
• 07:00 - 07:30 about 5% of what the federal government currently brings in with taxes. So if tariffs are harmful, always harmful even to the economy, why is Trump so focused on them? In the last 20 years, China has gotten aggressive investing in manufacturing to become the world's largest exporter. Even today, they invest more than any other country. It has let them export things like steel and aluminum at below market values. That coupled with numerous trade rule violations- - Allowed President Trump to really restart the whole discussion about using tariffs
• 07:30 - 08:00 to achieve certain objectives such as punishing other countries. And the Biden administration has just continued that. So the whole environment has really changed from 20 years ago when trade policy was pretty quiet business, and now we're talking about industrial policy, tariffs, subsidies, and all these different interventions because the whole global and geopolitical environment has changed quite dramatically. - [Speaker] And it would change even more dramatically with Trump's proposed tariff plan.
• 08:00 - 08:30 In the short run, we know the economy will suffer. In the long run, no one really knows. Will it be a war between the US and the rest of the world or the western world against China? Trump wants to play a game of chicken to find out.