Tariffs don't all act the same

The Trump administration is set to slap a broad set of tariffs on imported goods. Similar policies have had a range of impacts in the past.

President Donald Trump has put tariffs at the center of his economic policy agenda and expanded their use as a foreign policy tool as well. Trump used tariffs in his first term, but since regaining the White House in January he has pushed their use more aggressively than any other president in modern history. But what typically happens when tariffs are applied? The import levies coming in April are more extensive than any in recent U.S. history, but we can still look to past examples to see how they have affected prices and trade.

Trump famously slapped tariffs of up to 50% on imported washing machines in 2018, a move that was touted as necessary to safeguard domestic producers and jobs.

A few foreign producers did rebase some of their production to the U.S., and domestic manufacturers - mainly Whirlpool - also boosted employment a bit. A 2020 study published in the American Economic Review estimated the tariffs may have brought in about 1,800 jobs. But the resulting price increases meant consumers on the whole paid about $1.5 billion more annually for their washers.

What’s more, the ripple effects meant that prices for clothes dryers also shot up - even though they weren't subject to tariffs. Why? The machines are typically sold together, and companies used higher dryer prices to offset the hit tariffs delivered to margins on washers. Also, domestic producers not subject to the tariffs used the moment to raise their own prices.

Tire tariffs were first introduced in 2009 during the Obama administration to boost domestic production and employment in the face of an influx of cheap imports from China.

The tariff rate on tires was first set at 35% in 2009. The rate was reduced to 30% in 2010 and to 25% in 2011. The duties expired in 2012.

They did reduce imports from China but only minimally to the benefit of domestic producers. Most of it shifted to Latin America and elsewhere in Asia.

Three years later, Barack Obama in his State of the Union speech claimed the effort had saved more than 1,000 U.S. jobs. A Peterson Institute for International Economics study estimated the saved jobs came with a high price for American consumers: $1.1 billion in aggregate higher prices in 2011 alone.

However, tariffs don’t always have the same effect on imported products. Take televisions, for instance. During his first term, Trump imposed a 25% tariff on electrical machinery and equipment from China. That included flat-panel television imports, over half of which were coming from mainland China at the time, according to data from the International Trade Centre, a joint agency of the United Nations and World Trade Organization.

Despite the import levies, however, TV prices continued to fall, although the rate of decline slowed after the tariffs went into effect. TV prices got a brief boost from the pandemic-era supply-chain disruptions that helped ignite global inflation starting in 2021, but not from tariffs.

China had been the top source of TVs sold in the U.S. in 2017 before Trump hit them with tariffs. Television imports from China continued to grow, but now a larger share comes from Mexico. Now Trump is threatening to impose tariffs on all imports from Mexico, which now exports more goods to the U.S. than any other country.

Smartphones are next

Smartphones avoided getting dinged by Trump’s tariffs in the first trade war that kicked off in 2018, but may not be so lucky this time.

Notably, smartphones have gotten “cheaper” every year since the Bureau of Labor Statistics about five years ago started tracking their prices as a separate goods category in the monthly Consumer Price Index. The latest 20% tariff on Chinese imports will apply to several key Chinese electronics categories untouched by prior duties, including smartphones.

Source: www.reuters.com