Curran: Let’s be clear about who pays for tariffs

In the economic posturing between Kamala Harris and Donald Trump over who has the bigger tariffs, the loser is the American Middle.
“Protectionism is once again on the ballot in the 2024 U.S. elec­tion,” declared a Sept. 3 report authored by a team of 18 economists and analysts at UBS Financial Services. “The choice: sharply higher tariffs — and potentially univer­sal tariffs — under Trump, versus targeted, selective tariffs under Harris.”
That’s a choice between a rock and a hard place.
Yes, tariffs can be a useful tool in a foreign policy arsenal when used with discretion. Many of the sanctions imposed on Russia as a protest against its unprovoked invasion of Ukraine have taken the form of tariffs. If the only goal is to hurt another nation’s economy, tariffs work.
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But as a purely domestic economic matter, they are unequivocally self-defeating. Tariffs slow growth and drive up prices, which should make them an unpopular move at a time when Americans are worrying about both sides of the stagflation equation.
Though the effects of tariffs ripple through the whole economy, the sectors targeted matter a great deal. In a services economy, it makes no sense to subsidize industries like steel that are tied to a bygone American industrial age. Think about it this way: Because of steel tariffs enacted during Trump’s term and continued under President Joe Biden, 13 million restaurant workers are now paying higher prices for restaurant equipment to protect an industry that employs about 80,000 Americans.
There’s a clear and direct link between tariffs and higher prices. In fact, they drive up prices in two ways.
Let’s say a Chinese company has to pay $15,000 to sell a $15,000 electric car in the U.S., as has been the case since the Biden administration raised tariffs on Chinese EVs from 25% to 100%. Chinese companies such as Byd, which really does sell $15,000 EVs, can choose between not selling in the U.S. market at all, or raising the price on the relevant model to $30,000 to cover their tariff costs. That’s the very definition of inflationary.
Meanwhile, thanks to the suppression of price competition, General Motors, Tesla and other American automakers can sit back and count their profit margins, completely disincentivized from building a truly affordable electric car. That’s another inflationary effect.
In other words, Harris’ description of tariffs as a de facto sales tax at this month’s presidential debate is accurate. (Trump was also right when he pointed out that Harris and Biden have kept his tariffs, and even levied more.) Sales taxes are particularly painful for working- and middle-class shoppers because they are regressive, taking a greater proportional toll the closer you get to the bread line.
Tariffs also slow economic growth when, as inevitably happens, the trading partner reciprocates or retaliates in another fashion. The 2018 Trump tariffs on Chinese steel and aluminum might have looked good from the perspective of Cleveland smelters, but the Chinese cancellation of multibillion-dollar soybean orders made the trade war very unpopular in the Farm Belt.
The center-right Tax Foundation estimates that the tariffs imposed by the Trump administration, most of which were kept by the Biden administration, are costing the U.S. a net 0.2% in gross domestic product growth a year, or roughly $250 billion, in addition to 142,000 jobs.
Trump has proposed a 20% tariff on imports from almost any nation and as high as 100% on goods from China.
At the very least, Harris would continue and expand the Biden administration’s tariffs on electric vehicles and computer chips coming from China.
The goal seems to be to win a trade war against China, but in Pyrrhic fashion, incurring just as much pain — or likely more — as inflicted on the vanquished foe.
“Assessing the impact of any tariff policy on inflation and growth is challenging, given the complexity and changing pattern of global supply chains,” the UBS strategists wrote. “As a general rule: The more ex­treme the tariff, the more stagflationary it is.”
The U.S. has always used tariffs, but their heyday was before and during the Great Depression. Indeed, some economists blamed trade wars similar to that between the U.S. and China for the depth of the Depression.
After World War II, tariffs were viewed as anathema to the American economic doctrine of opening up economies to the free market. Tariffs were derided as outdated protectionist measures enacted as part of centrally planned economies like that of the Soviet Union. American policymakers long warned their allies that tariffs were the last resort of the noncompetitive, a way to keep economies closed. Only by artificially increasing the prices of quality Ford imports could the Soviets hope to sell Ladas.
A broad disillusionment with globalism and an urge to thwart China’s ambitions to surpass the U.S. economically and militarily has led to a resurgence in popularity.
To be sure, the relationship with China is a complex one. China is a rival America should take seriously — and one that often doesn’t play fair. From oppression of its own people to intellectual property theft abroad, China’s provocations must be met with market and diplomatic resistance from democratic nations. The problem with tariffs is not that they don’t punish American adversaries. They do. But they also punish Americans.
The UBS economists give the odds of Trump winning the election and carrying out his threat of universal tariffs as roughly 1 in 10. The last time around, the Trump administration made exceptions for imports from Canada and Mexico.
If universal tariffs are imposed, the blow to pocketbooks will be immediate. Only a small fragment of household necessities are manufactured in the U.S. Americans would soon have to pay more for everything from smartphones to foodstuffs. According to UBS estimates, the stock market will fall roughly 10% in short order, with even bigger selloffs for automakers, semiconductor companies and certain manufacturers.
UBS does allow for the possibility that the candidates are bluffing, assigning a roughly 1-in-2 chance that any tariffs imposed will be minimal, “gesture” policies.
Perhaps there’s a national security argument to be made about tariffs — keeping AI chip development onshore and trying to win some kind of tech moon race. If so, then the candidates need to unify American voters around such a vision. Convince those restaurant owners that paying more for ovens is worth it to keep China from controlling the coming AI singularity.
So far, neither candidate is connecting tariffs to that kind of patriotic sacrifice, choosing to play more to grievances. Both candidates are promising higher tariffs and greater affluence, even though those things are, according to the highest paid economists in the nation, mutually exclusive.
Instead of a market-based moon shot through a narrow focus on tariffs, the economic debate between Trump and Harris has started to sound like a competition to see who can trip over their own feet fastest.
Part of our opinion series The American Middle, this essay warns that middle class taxpayers will pay for both parties’ protectionism.
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