Paul Washington

Salona

Tariffs are essentially a national sales tax on goods imported from other places. Traditionally, they are used to try to keep people and companies from buying some specific set of imported goods in order to boost domestic production of those goods by making the imported products more expensive than their domestic competitors. This is what the Trump administration is claiming as its justification for the introduction of the current tariffs, with increased American manufacturing being the stated goal.

If the tariffs were only on manufactured goods, then there might be some real basis for that argument, but these tariffs include the raw materials that are needed for our manufacturing, as well as other products that cannot be produced in the U.S. So, relative to the justification, these tariffs appear to be an overreach.

But, even if we just stick to manufacturing, we run into a problem. The U.S. already has one of the largest manufacturing outputs of any nation, second only to China, Japan, Germany and South Korea are the next three, but combined they don’t produce as much as the U.S. China’s manufacturing strength has been built on its huge population, roughly four times that of the U.S., whereas the smaller populations of Japan, Germany, and South Korea limit their manufacturing capabilities.

A more accurate measure of manufacturing output is per capita output — manufacturing output divided by the country’s population. By that measure, China has about half the output of the U.S. Germany, Japan and South Korea, along with Austria, Denmark, Sweden and Finland, have slightly higher per capita manufacturing outputs, but they have much less diversified economies, including smaller farming and energy sectors. Only a few very small countries (Singapore, Ireland, Switzerland, Liechtenstein and San Marino) have significantly higher per capita outputs. The rest of the countries in the world have lower per capita manufacturing outputs than we do. Even Canada and Mexico, whose economies are tightly tied to ours, have only per capita outputs of 60% and 28%, respectively, of the U.S. The U.S. makes up about 1/24th of the world’s population, but is responsible for almost 1/6th of global manufacturing.

So, why do we need tariffs? Certainly not to drive more manufacturing back to the U.S. Maybe we need to encourage domestic production of certain products that are important for national security, but we have a very healthy broad-based manufacturing sector. We also are the world’s largest producer of petroleum (yes, larger than Saudi Arabia), and I am sure our domestic producers would appreciate the market advantages provided by tariffs — but petroleum is excluded. At the same time, we don’t have the domestic supplies of many raw materials, such as iron and aluminum, that our manufacturers need — but those are being taxed through tariffs, which will impede the growth of our manufacturing sector.

So, as you see prices rise dramatically over the next few months, ask yourself: “What is President Trump trying to accomplish?” If other countries respond with tariffs against American goods, American manufacturing will be hurt even more. Whatever else the President succeeds in doing, he will be impoverishing the American people … unless he cancels most of the tariffs.