Both administrations supported the economy with massive pandemic relief packages, which undoubtedly increased inflationary pressures. But there are other possible causes besides these bills, which have probably now permeated the entire system. Donald Trump has achieved little measurable results during his time in office. But he can certainly point to a break with decades of bipartisan economic policy on tariffs. President Trump has raised tariffs not only on China, but also on many of America’s closest allies in the West.
Candidate Biden criticized these tariffs, but President Biden kept most of them in place. Additionally, the Biden administration has imposed strict “Buy America” clauses on major spending bills such as the Inflation Control Act and the Infrastructure Act. All of these policies cost Americans more to achieve specific political goals, such as reducing dependence on China, increasing resilience, subsidizing green energy, and promoting domestic manufacturing. asking you to pay. As three economists have convincingly shown, even anti-inflation laws are about five times more expensive as a means of reducing carbon emissions than carbon taxes. All of the political goals Biden is promoting may be worthwhile, but they also come at a cost. And one wonders whether the trade-off is permanently higher inflation.
Tariffs are the worst of all these policies. Despite President Trump’s statements to the contrary, they are a tax on American consumers. U.S. Customs and Border Protection estimates that Americans have paid more than $230 billion in these taxes to date. Additionally, tens of billions of dollars are being provided to farmers to compensate for losses in agricultural exports (as a result of China’s retaliatory tariffs).
It’s hard to find anyone who believes tariffs are working. They did not change China’s policies one bit, causing huge damage to the American economy and job losses. Tariffs cost the U.S. economy about 200,000 jobs and 0.25% of gross domestic product each year, or about $70 billion in annual output, according to the Tax Foundation. Or, to put it another way, implementing a modest set of trade liberalization policies in 2022 proposed by the Peterson Institute for International Economics would reduce inflation by about 1.3 percentage points, which is a This equates to approximately $800 in savings per month.
The Office of the U.S. Trade Representative has promised to review the tariffs to determine whether they are effective. The company has been working on this review for about two years, but there is no end in sight – despite apparently having little on the agenda these days (as it has abandoned its core business of promoting trade). A senior government official confessed to me that this is because if the USTR admits that the tariffs failed, it must also recommend that the tariffs be lifted. The Biden team doesn’t want that.
There are also foreign policy costs to the rise of protectionism in the United States. Biden met with his Japanese counterpart this week in a bid to strengthen the alliance with one of the United States’ closest allies. Nevertheless, his administration announced that it would firmly oppose the acquisition of US Steel by a Japanese company. As U.S. Steel continues to build over the years, it’s a shadow of the giant it once was. Nippon Steel, a Japanese company, has committed to investing in U.S. Steel, honoring labor agreements and retaining all employees through 2026. In other words, it will rescue underperforming American companies. But optics appear to be more important to the Biden administration than substance.
The conventional wisdom in recent years has been that America’s push for globalization and efficiency has hollowed out its manufacturing base, leading to the rise of right-wing populism. But this argument does not stand up to scrutiny, as countries like Germany and France, which have protected workers and invested heavily in retraining, are also experiencing a boom in right-wing populism. The decline of the manufacturing industry is part of the economic prosperity of each country. Note that even in China, which has prioritized its factories above all else, the share of manufacturing in its economy has fallen from 32 percent in 2011 to 28 percent in 2022.
People around the world, especially in the United States, have become accustomed to the dramatic decline in costs brought about by globalization over the past three decades. The cost of clothing, electronics, communications, and air travel all plummeted during this time. It was easy to take advantage of these profits and complain about the negative effects of trade. But inflation hits everyone, not just the unemployed few. And when people are forced to bear the costs of higher prices, they tend to lash out at those in power. How ironic it would be if policies designed to keep populists at bay ended up punishing mainstream politicians instead.
