Give peace a chance - on trade
Published November 30, 2023
By John Hood
Former President Donald Trump has proposed an across-the-board tariff tax of 10% on all imports. How would such an increase in protectionist central planning affect our economy?
Barry Goodwin suspects it would be disastrous. A William Neal Reynolds Distinguished Professor of Agriculture and Resource Economics at North Carolina State University, Goodwin wrote in a recent American Enterprise Institute report that such a tariff would be “a pathway toward lower economic growth, the costs of which are likely to fall most heavily on lower- and middle-income families.”
In the paper, coauthored with Montana State University emeritus professor Vincent Smith, Goodwin pointed out that the trade restrictions Trump initiated during his four-year term had triggered retaliatory tariffs from other countries, hurting our exporters. His successor, Joe Biden, has largely retained the restrictions, which have contributed to the price inflation inflicted on American households.
North Carolinians have a lot at stake here. While some of our businesses benefit from protectionist taxes and regulations — allowing them to charge more for the goods and services they sell primarily to domestic consumers — other sectors of our state’s economy thrive on international trade.
Take agriculture. North Carolina firms export billions of dollars a year in soybeans, grain, vegetables, hogs, and poultry. When the US erects barriers against imports of, say, steel or aluminum, other countries respond by slapping tariffs or quotas on our produce. That costs our farmers and agribusinesses plenty.
Still, they don’t constitute our largest export sector. That would be North Carolina’s chemical industry, which sold some $14 billion in products to overseas customers in 2022. Other businesses with operations in our state export lots of machinery, transportation equipment, and electronics.
We also import lots of chemicals, machinery, vehicles, and electronics, too. My point isn’t that exports are all that matters when discussing tariff policy. North Carolinians benefit both by finding foreign markets for what we produce and by paying lower prices for what we import — either as raw materials for our businesses or as finished goods for our consumption. Trade wars diminish these benefits.
Protectionists often point to the hostile and authoritarian regime of China as justification for their policy. I share their disdain for Chinese tyranny and believe our national-security interests should shape America’s trading relationship with that country. In particular, our government should find friendlier places from which to acquire strategic minerals and fight harder against Chinese theft of high technology.
But what does that have to do with restricting imports from, say, Mexico, Canada, or Germany? Companies in those countries export a combined $20 billion worth of goods and services to North Carolinians. That’s more than twice our imports from Chinese producers. What are the legitimate security interests that justify provoking trade wars with our neighbors and allies?
As Goodwin and Smith pointed out in their paper on agricultural trade, the history of the 20th century serves as a cautionary tale here. The Smoot-Hawley tariff bill of 1930 “worsened economic welfare to the point of contributing to the Great Depression and partially accounted for the rise of fascism in Germany in the 1930s.”
The Tax Foundation estimates that a 10% across-the-board tariff tax would threaten more than 825,000 US jobs, including many here in North Carolina.
Erica York, a senior economist with the foundation, identified several channels through which such a tax increase would affect our economy. In addition to raising consumer prices, as well as the cost of raw materials and intermediate goods used by domestic producers, Trump’s policy would likely cause the dollar to appreciate in value, making it harder for exporters to sell their products abroad.
“Policymakers should embrace the system whereby US producers can sell their goods and services to consumers across the world and US consumers can access an abundant variety of goods and services produced across the world,” York argued. “Trump’s trade tax proposal threatens to upend this system — and we would all be poorer as a result.”
No more self-inflicted wounds, please.