New Spanish-made Ford Transit Connect vans are shipped to US ports where a 2.5% tariff is applied on their value. Then workers remove all rear seats and seat belts and plug the holes so the vehicles can be sold as work vans. Why? Because if the vans were imported into the United States as work vans without rear seats, the tariff would be 25%. This confusing tax on light trucks and work vans has been in place since 1964 and was imposed in retaliation for the German tax on American chicken. Chicken tariffs are long gone, but political pressure from the auto industry kept the import tax on trucks and work vans for 58 years.
From 1790 to 1862, more than 85% of federal revenue came from taxes on imports. In the late 1800s, powerful interest groups such as steel and wool producers were behind many of the tariff bills intended to block foreign competition in the American market. Later, Congress got carried away with high tariffs and protectionism with the Smoot-Hawley Bill of 1930, which led to an international trade war at the wrong time during the Great Depression. The Constitution only gives Congress the power to impose tariffs and other taxes, but Congress has ceded far too much power over trade policy to presidents over the past 100 years.
A tariff is a tax paid by importers at our border, the cost of which is often passed on to consumers. The average duty rate on all US imports was just 1.66% in 2017. Our low duty rates benefit all US consumers by keeping prices low, increasing shopping choices and encouraging companies to cooperate across international borders. In 2019, the average duty rate on all imports rose to 13.78% due to President Donald Trump’s executive orders imposing high tariffs on steel, aluminum, washing machines, panels sunglasses and many other products. China, the European Union and Canada have all retaliated with tariffs on US exports.
The purpose of these new tariffs may have been to force better trade deals and protect certain industries, but the real result was money coming out of your pocket. The American Action Forum estimates that new US tariffs and retaliatory tariffs imposed by other countries have increased US consumer costs by $57 billion. According to the USDA, retaliatory tariffs imposed on U.S. agricultural exports cost our agriculture industry $27 billion from mid-2018 to 2019. Besides raising prices for Americans, this trade war has created unnecessary friction between the United States and many other countries. Free trade between countries is a great contributor to a peaceful world.
Would you rather buy a China-made TV for $1,000 or a US-made TV for $2,000? This is actually a trick question as there are no TVs made in the USA, other than specialty outdoor and mirror TVs, as defined by the Federal Trade Commission to claim “Made in USA” . There were dozens of American companies making televisions in the 1950s, but overseas competition, innovation, and falling costs worked to the advantage of American consumers, so a television set cost now about a third of what it cost in 1980 (adjusted for inflation) with the added bonus of televisions now weighing less and having a sharper picture.
Consumer products made in China support millions of American retail jobs, and China is a key supplier of components needed by American manufacturers. China is our third-largest export market, buying $151 billion worth of goods and services in 2021 – mostly motor vehicles, business and financial services, construction equipment, semiconductors and grains.
Many people think of exports as just manufactured goods or raw materials, but 35% of US exports in 2019 were services. Summit County businesses engage in the international trade in services when a visitor from Germany rents a condo or a tourist from Britain suffers from altitude sickness and is treated at a local clinic. A Summit County architect designing an office building in Toronto is exporting a service. Fortunately, no politician is pushing for tariffs on these exports.
Politicians often complain about our trade deficit, but the fact that American consumers have a lot of money they want to spend on nice things made overseas isn’t particularly a bad thing. The United States has had an average annual trade deficit of $535 billion since 2000 while having a growing economy, low unemployment and a strong dollar. Politicians are keen to support struggling industries regardless of the economic value to taxpayers. According to the Peterson Institution for International Economics, Trump’s tariffs on steel imports are costing American consumers $900,000 a year for every steel job saved – a terrible deal by any measure.
Businesses in Summit County and across the United States make decisions every day about how best to take care of their customers and succeed. A surprise from the government such as a new tariff can significantly disrupt the economy and lead to job losses, lower profits and higher consumer prices. America recorded impressive exports of $2.5 trillion in 2021 due to our country’s many competitive advantages such as top quality universities, educated and flexible workforce, innovative businesses and healthy financial markets. Let us encourage our elected officials to minimize government intervention in our thriving market economy.
Paul Olson’s column “A Friendly Conservative” is published biweekly on Tuesdays in the Summit Daily News. Olson has lived in Breckenridge since 1995. Semi-retired, he works at REI in Dillon and enjoys snowboarding, Nordic skiing and hiking. Contact him at [email protected]