By Guest commentary Friday, September 6th, 2024

Will you be buying a washing machine next year? You will not be alone. 

In 2023, 13.3 million washing machines were sold in the United States, and similar numbers are expected to be purchased in the years to come.

Over decades, consumers enjoyed an increasing number of choices, better technology, and lower prices — whether they were built in the U.S. or abroad. 

Actually, they experienced all these benefits BECAUSE they were built in the U.S. AND abroad. 

Global competition among suppliers and manufacturers has brought many of these advantages to individuals and businesses in the United States.

But then there might be tariffs — again. 

One of the presidential candidates has already announced new tariffs of 60% for Chinese-made goods and 10% for all other countries should he be elected to office. 

This may be well intended but unfortunately, the road to the netherworld is paved with good intentions, as they say. 

In 1789, the U.S. passed its Tariff Act and its effects are, at best, mixed. Often done with the intent of revenue generation, limiting foreign imports, and protecting domestic industries, a tariff essentially is a tax on goods from other countries, and that has a number of negative effects. 

By now, we should have learned the lesson: In 2018, the Trump Administration imposed tariffs on $283 bn of U.S. imports on everything from finished goods such as washing machines or solar panels to materials such as steel and aluminum. 

As a consequence, the U.S. economy faced many unintended consequences that we can still feel. 

In 2023, the U.S. International Trade Commission published a report on the effect of the “safeguard measure” aka tariffs that were imposed on washing machines in 2018. 

While imports of these items indeed declined from Mexico and South Korea, companies such as Korean electronics giant LG swiftly responded and shifted production to places such as Vietnam and Thailand, resulting in an increase in imports from these countries. 

There were other negative consequences as well. U.S. import tariffs were almost completely passed through into U.S. domestic prices. As a result, prices of washing machines increased, and consumers were stuck with the bill. 

In addition, U.S. manufacturers also reported declines in operating income and gross profits because of higher cost of input factors. Since tariffs were imposed in 2018 and 2019 (and actually left in place by the current administration), the U.S. manufacturing sector shrunk from 10.9% to 10.1%, and overall, Trump’s first-term tariffs cost the average American household $625 per year.

As they say, forecasts are particularly difficult when they are for the future. However, new increases in customs tariffs envisioned by Donald Trump could slash gross domestic product by 0.8% and cost 684,000 American jobs, according toestimates by the non-partisan Tax Foundation. 

Resulting substantial pressures on consumer prices would bring inflation back at an additional estimated 0.75%. 

And because lower-income households spend a larger percentage of their income on consumption, higher tariffs would hurt them even more. After-tax incomes would be reduced by 3.5% for the bottom half of the income distribution. 

As an added twist, Trump also suggested replacing individual income tax with higher tariffs, which is an even worse idea. In order to replace individual income tax revenue, the U.S. would have to introduce an across-the-board customs tariff of 70%, inflicting even more harm on the U.S. economy.

Besides, global trade is a two-way road. 

Retaliation by trading partners would follow swiftly, effectively blocking U.S. exporters from doing business in foreign countries. 

In 2018, China first imposed tariffs on $3.3 billion of US exports, followed by another $50 billion and then an additional $60 billion later in the year. 

As a result, while China’s exports to the U.S. fell by about 52% immediately after tariffs were introduced, U.S. exports to China also fell by 49.3%. From agriculture to finished goods, many sectors were impacted. 

A recent study finds that 43% of all future U.S. exports would be negatively affected by higher U.S. tariffs.

So, what could be gained from introducing more tariffs apart from political capital? 

Not much: In 2023, government revenue from tariffs was only slightly more than $80 bn, which would reduce additional revenue from higher tariffs to an insignificant trickle.

Philosophically, introducing high tariffs would mean an abandonment of free-market ideals. For individuals and businesses, it would mean an increase in prices, limited choices, lower productivity, and hampered innovation. 

More than 170 years ago, free trade economist and French National Assemblymember Frederic Bastiat sarcastically demanded a law that all citizens must permanently shut all windows and close all curtains because the sun, a ruthless competitor for illumination was hurting the business of candlemakers. Let’s not go there and close the doors to global trade!

• Gerhard Apfelthaler is a professor and the dean of the School of Management at California Lutheran University