Some History on Trade and Tariffs

I tend to think that when someone says “This is how it should be” or “As it was, so it shall be” there’s a good chance that the claims are incorrect. Marc Levinson’s book, An Extraordinary Time, hits an area, where I have had that gut feeling that something isn’t correct, quite well. Can the US and the world reach the levels of growth that happened after WWII and ended around 1973? Short answer not likely. The book goes into the various technocrat approaches to fixing the economy, and then the book shows that none of those really hold up. A quote from Paul Samuelson sums up “The third quarter of the Twentieth Century was a golden age of economic progress. It surpassed any reasoned expectation. And we are not likely to see its equivalent anytime soon again.”

One specific area, the use of tariffs to protect American jobs, jumped out for me. After resisting pressure for tariffs on bolts, nuts, and screws (yes a major area it seems), in 1978 the Carter Administration caved and imposed a 15% tariff that lasted three years. US manufacturers raised their prices so that tariff protection cost was passed to consumers. One study estimated that limiting imports from Asia (the target of the tariff) cost $550,000 per job “saved” while the average job in that industry made $23,000 per year. And the tariff did not save the industry. By the mid 1980s sales of the US industry in that sector had lost about 15%.

When it came to autos, trade limits with Japan saved 44,100 US jobs. That is great. But one study says that the cost to consumers was $8.5 billion, because of higher prices “or $193,000 per additional job–approximately six times the annual pay of an American autoworker.” And Japanese automakers still sold their cars at the higher prices and so made “perhaps $7 billion in added profit” which was re-invested in building plants in the US and developing higher-end cars. That is they seem to have become more competitive.

I note these details, not because I am an avid free-trade person. I note them not because I think those who are displaced by the way society and industry change should be shoved aside or chewed up. I note them, because it seems to me that some of the core points about trade policy hold up, if we want lower consumer prices. Remember that part of being able to buy lower cost and super cool TVs, cars, etc. means our dollars are able to buy other things too. There are oceans of ink on the way trade and costs ought to spur overall good things. I leave that for others and other posts.

For this post, the core issue is what happens when large swaths of society, be they in the vast plains or the former industrial giants or in cities and suburbs, aren’t able to have jobs and so their place in society is unstable? Levinson’s book goes to the many times the US and other countries have tried to solve such riddles. The answers are not clear. But the book’s ability to show how looking to politicians and policy to save us has not worked as crisply as we may hope or believe is good tonic going forward. That is regardless of who is in power, look at the solution, look at whether it has been tried, see what happened, and ask whether there is a better way to address the problem; one that might give aid to those threatened and still tee up better businesses for the future.

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1 Response

  1. While some claim that the past election was driven by views on trade issues, I don’t believe so. Not enough people understand the issues in great detail. People are just living under the assumption that the trade agreements will be fair and just.