But, but, this is the very point of tariffs
Do tariffs allow an outbreak of capitalist greed? The Lizzie Warren explanation? Well, actually, yes. Might be the first time the Senator has been correct on an economic issue. That is, there’s no maybe here, this is the whole point:
One piece of research that has gained near mythical status among economists in recent months is a 2020 study of tariffs Trump applied on washing machines during his first term. It found domestic machines and clothes dryers, which were not subjected to tariffs, also rose in price.
Calling it a “great example”, Jerome Powell told a Fed press conference last month that it showed how tariffs can raise prices across the board. “Manufacturers just, you know, they just followed the crowd and raised it.”
Trump applied the tariffs, ranging from 10-50%, in 2018 after a complaint by the US manufacturer Whirlpool that foreign rivals were flooding the market with cheap machines, threatening American jobs. While the policy helped create about 1,800 new jobs, it came at an astronomical cost: consumer prices rose by almost $1.5bn, or about $817,000 per role.
Felix Tintelnot, one of the report’s authors and who is now an economics professor at Duke University, says there are several lessons that are relevant today. “I’m not a fan of the term ‘price gouging’. I think one needs to consider price changes on goods beyond those directly affected by tariffs – but one might also label this as smoothing out price changes.
“If there hadn’t been the opportunity to raise dryer prices, washer prices might have risen more. Furthermore, facing less competition from foreign firms, domestic producers might raise their prices as well.”
The danger of firms using the cover of tariffs is acknowledged among Trump’s inner circle – to the point that, should inflation rise, it is clear the president will begin bashing corporates for price gouging.
Raising the price that can be charged for domestic production is the very point and purpose of tariffs.
Think about, say, steel. US steel companies are making losses. Because Chinese steel manufacturers are dumping steel below cost (leave aside whether that’s actually true, just go with the flow of the argument as it is made). Tariffs are imposed upon Chinese steel. Therefore US steel manufacturers can raise their prices, make a profit and not go bust. That’s the whole point of having the tariffs.
That corporate, capitalist, greed to be able to raise prices is always there. It’s competition in a free market that constrains it. So, limit that freedom to supply the market and so the competition and prices will rise and capitalists will cackle.
This isn’t some side effect, some tragedy unwanted, it’s the very point and purpose of the whole idea of trade restrictions.
Free trade benefits the consumer. Tariffs, trade restrictions, benefit the domestic capitalists. This isn’t an error it’s the very design.
Therefore, of course, we’re against tariffs. Near all tariffs, near all the time - national security being one possible exception but we’d need to see the details of the claim to make sure it’s not just those domestic capitalists claiming it just because they can.
Just another proof of us neoiliberals being proper lefties. We’re on the side of the people, not the capitalists. What makes us differ from the average lefty is that we propose policies that actually do make the people richer. Free trade being one of those policies.
After all, other than the domestic capitalists who actually wants policy to be designed to enrich the domestic capitalists?
Tim Worstall