Don't Believe Biden Or Trump Tariffs Don't Protect Jobs

Free trade profits some industries, but not others. Those that profit rely on exporting their outputs to foreign markets, invest there, or rely on importing products from there. Similarly, tariffs profit some industries (those they protect), but not others. As industries evolve and change, so do their relationships with international trade. Correspondingly, their attitudes toward free trade versus tariffs change.

Capitalist economies almost always pit pro-free trade against pro-tariff protection industries. Their battles vary from open, public, and intense to quiet and under-the-table. Their weapons include bribes, donations, and other kinds of deals offered to politicians mostly by the employers in the interested industries.

Both sides also compete to enlist the public and especially voter support -“public opinion” - in order to swing politicians their way. Employers on each side spend millions to persuade the employee class to support their side.

Politicians usually split according to which side offers more donations threatens more opposition in the next election, or has spent more to shape public opinion. Each side seeks to prevail, to make government policies favor free versus tariff-protected trade.

One way to achieve that is endless repetition by politicians, business leaders, journalists, and academics of one side's perspective in the hope and expectation that it becomes“common sense.”

Each side's arguments are driven by their respective industries' financial self-interest, not any shared commitment to the“truth” about tariffs versus free trade. As we show below, the truth is precisely that neither tariffs nor their opposite, free trade, necessarily protect jobs. At best, both protect some jobs at the cost of losing others.

The truth is that we cannot know-and thus cannot measure-all the effects on profits or jobs caused by either free trade or protectionism. So politicians cannot know what the net effect on jobs will be of either free or protected trade policies of governments.

A simple example can clarify the basic points. Chinese auto-makers currently sell high-quality electric vehicles (EVs), cars, and trucks, globally, at very competitive prices. Those EVs can be found on roadways around the world, but not in the US. That is because, until recently, a 27.5% tariff was applied in the US.

For example, if a Chinese EV's port-of-entry price was, say, US$30,000, it would cost a US buyer $30,000 plus the 27.5% tariff (an additional $8,250) for a total U.S. price of $38,250.

Recently, President Biden raised that tariff from 27.5% to 100%, thereby raising the Chinese EV's price for potential US buyers to $60,000. The EU plans similarly to raise its tariff against Chinese EVs from 10% to 48%, thereby raising the price to potential EU buyers to $44,400.

Those tariffs protect makers of electric vehicles inside the U.S. and EU precisely because those EV makers need not add any tariff to the prices they charge. Thus, for example, if EVs made in the US and EU had cost $40,000, they would have been uncompetitive with the Chinese EVs priced at $30,000.

Prospects of profit for them would have been grim. With the tariffs now imposed by the US and proposed by the EU, their EV makers see profit bonanzas. Makers in the EU can raise their EV price from $40,000 to, say, $43,000, and still be cheaper than Chinese EV imports suffering the planned EU tariff and thus priced at $44,400.

EV makers in the US can raise their prices to, say, $50,000, sharply improving their profits while still outcompeting Chinese EVs priced at $60,000 (including the 100% tariff).

Barring interference from other factors (possible automation, changing tastes for cars, and so forth), we may assume that the raised tariffs increased the profits of EV makers inside the U.S. and EU. We may also assume that those tariffs also saved jobs at those U.S. EV makers. But that is never the end of the story. EV jobs are not the only jobs affected by raised tariffs on EVs.

For example, many corporations in the United States buy fleets of EVs as inputs. Many compete with corporations outside the United States who likewise buy such fleets as their inputs. The raised US tariff seriously disadvantages EV fleet-buying firms inside the US.

Firms inside the US cannot buy Chinese electric vehicles for $30,000 each. They have to pay much more for the tariff-protected US-made EVs. In stark contrast, their competitors outside the US can buy Chinese EVs at the far cheaper $30,000 price.

It follows that those outside competitors can offer lower prices for whatever products they sell because they enjoy lower (because free of tariffs) input costs. Those firms will gain buyers for their products around the world at the expense of their inside-the-US competitors.

Jobs will likely be lost in such competitively disadvantaged firms inside the United States. While raising tariffs on Chinese EVs may have protected US workers at EV producers inside the US, it also deprived other US workers of jobs in other US industries competitively disadvantaged by the EV tariff.

In our examples above, US and EU makers of EVs can and likely will raise their prices because of tariff protection. In this way, tariffs tend to worsen inflations. Inflations in turn tend to hurt exports as rising prices lead customers to buy elsewhere. Reduced exports usually mean reduced jobs making such exports.

Still more factors shape tariffs' job effects. Often“forgotten” by tariff boosters are possible retaliations by affected other countries. Evidence already suggests retaliatory Chinese tariffs coming on imports of US-made large-engine vehicles.

If that happens, US exports of such engines to China will shrink or end. Jobs entailed in those exports will also end, offsetting job gains from the US tariffs imposed on Chinese EVs.

Since China is the chief target of US and EU tariff policies it is important to see how China can retaliate in ways that threaten large US and EU job losses. China has now successfully surrounded itself with allies in the BRICS (a total of 11 countries).

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The economic damage inflicted upon China by US tariffs incentivizes China to offset much or all of that damage by shifting to sell output instead to the world outside of the United States and the EU and especially to its BRICS partners. As China redirects its exports, that will also impact where its imports will be sourced. All those changes will affect many US and EU industries and the jobs they sustain.

Honest economists shrug and plead irreducible uncertainty when asked whether tariffs will“protect” jobs. No matter how hard-pressed or bribed to give a definitive answer, honesty precludes it. Nonetheless, politicians eager to get votes by promising that a tariff they impose will protect jobs can rest easy. They will easily find economists who will give or sell them the answers they want to hear. Trump and Biden did and do.

The implications of this analysis for the US working class are significant. The struggle between free traders and protectionists pits shifting alliances of capitalist employers against one another. One alliance of capitalist employers fights another to win the working class's votes. Each side promotes its false narrative about what is the best policy for jobs.

The working class should not be fooled or distracted by these free trade versus protectionism struggles among capitalists. Whoever wins them remains profit-driven first and foremost. The ultimate impact on jobs is not a priority for any of them. It never was. The working class's interest in shaping the quantity and quality of jobs can only be genuinely prioritized if society progresses beyond capitalism.

That happens when employees (running democratic worker coops) replace employers (dominating hierarchical capitalist enterprises) in the driver seats of factories, offices, and stores. When employees have become their own employers, they will make the quantities and qualities of a society's jobs a key policy objective rather than a side-effect of policies focused elsewhere.

Richard D Wolff is professor of economics emeritus at the University of Massachusetts, Amherst, and a visiting professor in the Graduate Program in International Affairs of the New School University, in New York. Wolff's weekly show,“Economic Update,” is syndicated by more than 100 radio stations and goes to 55 million TV receivers via Free Speech TV.

This article first appeared on Independent Media Institute and is republished with kind permission. It was produced by Economy for All , a project of the Independent Media Institute.

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