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TARIFFS DON’T PROTECT JOBS. DON’T BE FOOLED.  
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Richard D. Wolff
July 12, 2024
Independent Media Institute - Economy For All
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_ Both Trump and Biden imposed high tariffs on imported products made
in China and other countries. Those impositions broke with and
departed from the previous half century’s policies favoring “free
trade.” _

, Composite: Reuters, Rex/Shutterstock

 

Both Trump and Biden imposed high tariffs on imported products made in
China and other countries. Those impositions broke with and departed
from the previous half century’s policies favoring “free trade”
(less or minimal government intervention in international markets).
Free trade policies facilitated “globalization,” the euphemism for
the post-1970 surge in U.S. corporations’ investing abroad:
producing and distributing there, re-locating operations there, and
merging with foreign enterprises there. Presidents before Trump had
insisted that free trade plus globalization best served U.S.
interests. Both Democratic and Republican administrations had
enthusiastically endorsed that insistence. Dutifully performing
ideological support duties, they stressed how globalization’s
benefits to U.S. corporations would “trickle down” to the rest of
us. Globalizing U.S. corporations used portions of their profits to
reward both parties with donations and other electoral and lobbying
supports.

Our last two Presidents reversed that position. Against free trade
they favored multiple government interventions in international trade,
especially imposing and raising tariffs. Instead of advocating free
trade and globalization, they promoted economic nationalism. Like
their predecessors, Trump and Biden depended on financial support from
corporate America as well as votes from the employee class. Many U.S.
corporations and those they enriched had shifted their profit
expectations in response to the competition they faced from new,
powerful non-U.S. firms. The latter had emerged during the
free-trade/globalization conditions after 1970, above all in China.
U.S. firms increasingly welcomed or demanded protection from those
competitors. Accordingly, they financed changes in the political winds
and shifts in “public opinion” toward economic nationalism.

Trump and Biden thus endorsed pro-tariff policies that protected many
corporations’ profits. Those policies also appealed to those for
whom economic nationalism offered ideological comforts. For example,
many in the United States grasped the relative decline of the United
States and its G7 allies in the global economy and the relative rise
of China and its BRICS allies. They welcomed an aggressive
counteraction in the forms of tariff and trade wars. Both corporations
(including mass media) and their subservient politicians worked to
build popular and voter support. That was needed to pass the tax,
budget, subsidy, tariff, and other laws that would realize the shift
to economic nationalism. A key argument held that “tariffs protect
jobs.” A political struggle pitted the defenders of “free trade”
against those demanding “protection.” Over the last decade, those
defenders have been losing.

These days, most candidates and parties perform this particular
ideological task for capitalism: persuading Americans that tariffs
protect jobs. Note, however, that over the 50 years before around
2015, the same parties and their candidates mostly performed the
opposite ideological task. Then they denounced tariffs as unnecessary,
inefficient, and counterproductive government interferences. “Free
international markets” would, they insisted, be much better for
workers and capitalists. However, we need not and should not have been
fooled then or now. Neither ideological claim is true.

Free trade profits some industries, but not others. Those that profit
rely on exporting their outputs to foreign markets, invest there, or
rely on importing products from there. Similarly, tariffs profit some
industries (those they protect), but not others. As industries evolve
and change, so do their relationships with international trade.
Correspondingly, their attitudes toward free trade versus tariffs
change.

Capitalist economies almost always pit pro-free trade against
pro-tariff protection industries. Their battles vary from open,
public, and intense to quiet and under-the-table. Their weapons
include bribes, donations, and other kinds of deals offered to
politicians mostly by the employers in the interested industries. Both
sides also compete to enlist the public and especially voter
support—“public opinion”—in order to swing politicians their
way. Employers on each side spend millions to persuade the employee
class to support their side. Politicians usually split according to
which side offers more donations threatens more opposition in the next
election, or has spent more to shape public opinion. Each side seeks
to prevail, to make government policies favor free versus
tariff-protected trade. One way to achieve that is endless repetition
by politicians, business leaders, journalists, and academics of one
side’s perspective in the hope and expectation that it becomes
“common sense.”

Each side’s arguments are driven by their respective industries’
financial self-interest, not any shared commitment to the “truth”
about tariffs versus free trade. As we show below, the truth is
precisely that neither tariffs nor their opposite, free trade,
necessarily protect jobs. At best, both protect some jobs at the cost
of losing others. The truth is that we cannot know—and thus cannot
measure—all the effects on profits or jobs caused by either free
trade or protectionism. So politicians cannot know what the net effect
on jobs will be of either free or protected trade policies of
governments.

A simple example can clarify the basic points. Chinese auto-makers
currently sell high-quality electric vehicles (EVs), cars, and trucks,
globally, at very competitive prices. Those EVs can be found on
roadways around the world, but not in the United States. That is
because, until recently, a 27.5 percent tariff was applied in the
United States. For example, if a Chinese EV’s port-of-entry price
was, say, $30,000, it would cost a U.S. buyer $30,000 plus the 27.5
percent tariff (an additional $8,250) for a total U.S. price of
$38,250. Recently, President Biden raised that tariff from 27.5
percent to 100 percent, thereby raising the Chinese EV’s price for
potential U.S. buyers to $60,000. The EU plans similarly to raise its
tariff against Chinese EVs from 10 percent to 48 percent, thereby
raising the price to potential EU buyers to $44,400.

Those tariffs protect makers of electric vehicles inside the U.S. and
EU precisely because those EV makers need not add any tariff to the
prices they charge. Thus, for example, if EVs made in the U.S. and EU
had cost $40,000, they would have been uncompetitive with the Chinese
EVs priced at $30,000. Prospects of profit for them would have been
grim. With the tariffs now imposed by the U.S. and proposed by the EU,
their EV makers see profit bonanzas. Makers in the EU can raise their
EV price from $40,000 to, say, $43,000, and still be cheaper than
Chinese EV imports suffering the planned EU tariff and thus priced at
$44,400. EV makers in the U.S. can raise their prices to, say,
$50,000, sharply improving their profits while still outcompeting
Chinese EVs priced at $60,000 (including the 100 percent tariff).

Barring interference from other factors (possible automation, changing
tastes for cars, and so forth), we may assume that the raised tariffs
increased the profits of EV makers inside the U.S. and EU. We may also
assume that those tariffs also saved jobs at those U.S. EV makers. But
that is NEVER the end of the story. EV jobs are NOT the only jobs
affected by raised tariffs on EVs.

For example, many corporations in the United States buy fleets of EVs
as inputs. Many compete with corporations outside the United States
who likewise buy such fleets as their inputs. The raised U.S. tariff
seriously disadvantages EV fleet-buying firms inside the United
States. Firms inside the United States cannot buy Chinese electric
vehicles for $30,000 each. They have to pay much more for the
tariff-protected U.S.-made EVs. In stark contrast, their competitors
outside the United States can buy Chinese EVs at the far cheaper
$30,000 price. It follows that those outside competitors can offer
lower prices for whatever products they sell _because they enjoy
lower (because free of tariffs) input costs_. Those firms will gain
buyers for their products around the world at the expense of their
inside-the-U.S. competitors.

Jobs will likely be lost in such competitively disadvantaged firms
inside the United States. While raising tariffs on Chinese EVs may
have protected U.S. workers at EV producers inside the United States,
it also deprived other U.S. workers of jobs in other U.S. industries
competitively disadvantaged by the EV tariff.

In our examples above, U.S. and EU makers of EVs can and likely will
raise their prices because of tariff protection. In this way, tariffs
tend to worsen inflations. Inflations in turn tend to hurt exports as
rising prices lead customers to buy elsewhere. Reduced exports usually
mean reduced jobs making such exports.

Still more factors shape tariffs’ job effects. Often “forgotten”
by tariff boosters are possible retaliations by affected other
countries. Evidence already suggests retaliatory Chinese tariffs
coming on imports of U.S.-made large-engine vehicles. If that happens,
U.S. exports of such engines to China will shrink or end. Jobs
entailed in those exports will also end, offsetting job gains from the
U.S. tariffs imposed on Chinese EVs.

Since China is the chief target of U.S. and EU tariff policies it is
important to see how China can retaliate in ways that threaten large
U.S. and EU job losses. China has now successfully surrounded itself
with allies in the BRICS (a total of 11 countries). The economic
damage inflicted upon China by U.S. tariffs incentivizes China to
offset much or all of that damage by shifting to sell output instead
to the world outside of the United States and the EU and especially to
its BRICS partners. As China redirects its exports, that will also
impact where its imports will be sourced. All those changes will
affect many U.S. and EU industries and the jobs they sustain.

Honest economists shrug and plead irreducible uncertainty when asked
whether tariffs will “protect” jobs. No matter how hard-pressed or
bribed to give a definitive answer, honesty precludes it. Nonetheless,
politicians eager to get votes by promising that a tariff they impose
will protect jobs can rest easy. They will easily find economists who
will give or sell them the answers they want to hear. Trump and Biden
did and do.

The implications of this analysis for the U.S. working class are
significant. The struggle between free traders and protectionists pits
shifting alliances of capitalist employers against one another. One
alliance of capitalist employers fights another to win the working
class’s votes. Each side promotes its false narrative about what is
the best policy for jobs.

The working class should not be fooled or distracted by these free
trade versus protectionism struggles among capitalists. Whoever wins
them remains profit-driven first and foremost. The ultimate impact on
jobs is not a priority for any of them. It never was. The working
class’s interest in shaping the quantity and quality of jobs can
only be genuinely prioritized if society progresses beyond capitalism.
That happens when employees (running democratic worker coops) replace
employers (dominating hierarchical capitalist enterprises) in the
driver seats of factories, offices, and stores. When employees have
become their own employers, they will make the quantities and
qualities of a society’s jobs a key policy objective rather than a
side-effect of policies focused elsewhere.

_This article was produced by __Economy for All_
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of the Independent Media Institute._

_RICHARD WOLFF is the author of Capitalism Hits the Fan
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Crisis Deepens
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He is founder of Democracy at Work
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* tariff
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* Jobs
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* China
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* Donald Trump
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* Joe Biden
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* Free Trade
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* corporate profits
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* capitalism
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