• Tag Archives economy
  • Trump’s Washing Machine Tariffs Cost Consumers $800,000 Per Job Created

    Three economists at the University of Chicago and the Federal Reserve Board studied the effects of Trump’s 2018 tariffs on imported washing machines in a new research paper titled “The Production, Relocation, and Price Effects of US Trade Policy: The Case of Washing Machines” and concluded that (italics added):

    Despite the increase in domestic production and employment, the costs of these 2018 tariffs are substantial: in a partial equilibrium setting, we estimate increased annual consumer costs of around $1.5 billion, or roughly $820,000 per job created.

    Jim Tankersley reviews the new research on Trump’s washing machine tariffs in a New York Times article “Trump’s Washing Machine Tariffs Stung Consumers While Lifting Corporate Profits,” here’s a slice (italics added):

    President Trump’s decision to impose tariffs on imported washing machines has had an odd effect: It raised prices on washing machines, as expected, but also drove up the cost of clothes dryers, which rose by $92 last year. What appears to have happened, according to new research from economists at the University of Chicago and the Federal Reserve, is a case study in how a measure meant to help domestic factory workers can rebound on American consumers, creating unexpected costs and leaving shoppers with a sky-high bill for every factory job created.

    Research to be released on Monday by the economists Aaron Flaaen, of the Fed, and Ali Hortacsu and Felix Tintelnot, of Chicago, estimates that consumers bore between 125% and 225% of the costs of the washing machine tariffs. The authors calculate that the tariffs brought in $82 million to the United States Treasury, while raising consumer prices by $1.5 billion.

    The goal of all those moves [tariffs] was to push production….to America. The study authors credit Mr. Trump’s tariffs with 200 new jobs at Whirlpool’s plant in Clyde, Ohio, and a further 1,600 jobs for a Samsung factory in South Carolina and an LG factory in Tennessee. That’s 1,800 new jobs, at the cost—net of tariff revenues—of just under $1.5 billion for American consumers. Or, as the authors calculate, $817,000 per job.

    The researchers’ empirical findings that Trump’s washing machine tariffs cost consumers more than $800,000 per US job created is consistent with previous research including a 2012 study by the Peterson Institute (Gary Clyde Hufbauer and Sean Lowry) that estimated that the 2009 tariffs on Chinese tires cost consumers $926,500 for each of the 1,200 US jobs saved (see CD post on that research here).

    A previous and more comprehensive study by Hufbauer of 26 different case studies of trade protection in the US revealed that the average annual cost to consumers per job saved was more than $500,000 (in 2016 dollars) and in some cases exceeded $1 million per year per job, see related CD post “Yes, protectionism can save some US jobs, but at what cost? Empirical evidence suggests it’s very, very expensive” that featured the table below.

    As the cartoon above by Michael Ramirez illustrates graphically, the tariffs imposed last year on imported washing machines that launched Trump’s insane trade war are imposing YUGE costs on American consumers and businesses that make the US economy worse off, not better off. Assuming the new 1,200 factory workers at Whirlpool and Samsung are making the average annual pay for US manufacturing workers of $43,000, the costs to American consumers exceeds the value of each new job by a factor of 19-to-1.

    If the Dealmaker-in-Chief thinks it’s a good deal to force US consumers to pay $820,000 annually in higher costs to create a new $43,000-per-year factory job, then he might have to re-think his deal-making strategies or take some remedial economics courses in the economics of trade protection. Is that Trump’s idea of the kind of “winning” we’re supposed to get sick of?

    Mark J. Perry

    Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.

    This article was originally published on FEE.org. Read the original article.

  • The Bad Idea behind Our Sluggish Recovery

    The Bad Idea behind Our Sluggish Recovery

    “I actually compare our economic performance to how, historically, countries that have wrenching financial crises perform. By that measure, we probably managed this better than any large economy on Earth in modern history.” – President Obama

    So say defenders of the sluggish recovery. But recent research belies that idea. The truth is that our lackluster growth is the result of neglecting an essential economic concept.

    According to Just Facts Daily, “even after the recession ended in 2009 average real GDP growth has been 35% below the average from 1960–2009, a period that includes eight recessions.” Moreover,

    In early 2011, the White House Office of Management & Budget projected that real GDP would grow by an average of 3.6% per year for five years after the Great Recession (see pages 14–16). Obama’s economists noted that this figure was lower than the typical post-recession growth rate of 4.2%, but they concluded that the “lingering effects from the credit crisis may limit the pace of the recovery,” even though the recession left “enormous room for growth in 2011.” Ultimately, GDP grew by an average of 2.2%, or 39% below the White House’s conservative estimate.

    Despite these unmet forecasts, some insist that recoveries from financial crises are inherently slower.  While previous economic research by Carmen Reinhart and Kenneth Rogoff appeared to affirm that notion, a subsequent study has shown it doesn’t withstand scrutiny.

    Harvard economists Robert Barro and Jin Tao recently conducted a major study of 185 economic contractions of at least 10 percent of GDP in 42 countries, including “financial crises such as the Great Depression of the 1930s.” They found that

    On average, during a recovery, an economy recoups about half the GDP lost during the downturn. The recovery is typically quick, with an average duration around two years. For example, a 4% decline in per capita GDP during a contraction predicts subsequent recovery of 2%, implying 1% per year higher growth than normal during the recovery. Hence, the growth rate of U.S. per capita GDP from 2009 to 2011 should have been around 3% per year, rather than the 1.5% that materialized.

    Arguing that the recovery has been weak because the downturn was severe or coincided with a major financial crisis conflicts with the evidence, which shows that a larger decline predicts a stronger recovery.

    So why hasn’t this recovery been stronger? The predominant explanation blames inadequate stimulus spending. It holds that more “demand” is needed to boost the economy. But this inverts the nature of the relationship between demand and economic performance. Demand is the result—not the cause—of economic activity. Therefore production, not demand, determines growth. At best, trying to stimulate demand while ignoring production is like trying to grow a flower by watering its petals instead of its roots.

    But it’s often worse than that. The state can spend only what the private sector produces, which means government must first remove a dollar from the economy to spend it into the economy. Because doing so misallocates resources, the net effect is worse than zero: Rather than merely neglecting the flower’s roots, it’s like sucking water out of the soil and pouring it over the flower’s petals. Small wonder the economy has failed to break even three percent growth rates.

    This basic insight was once universally understood. Writing in his “fourth proposition,” for instance, John Stuart Mill explained that “the demand for commodities is not the demand for labor”—or, as economist Steven Kates clarifies, “when you buy goods and services you are not increasing the number of jobs.” That’s because the payment of wages precedes the production and sale of a good or service. “The employment of labor is an entrepreneurial decision made in advance of production and sale. It is not the consequence of someone having finally bought the product,” stresses Kates. Only productive activity creates economic growth.

    While failing to grasp this concept was once considered the sign of a bad economist, today it is almost totally disregarded. That’s because the economist responsible for our abandoning this truth—John Maynard Keynes—although he never refuted it, he successfully invented and repudiated a mischaracterized version of it so that subsequent generations have been convinced of its error.

    But the truth is it remains as valid today as ever. And until our policies reaffirm it we shouldn’t be surprised to witness suboptimal economic growth rates and a weaker economy.

    David Weinberger

    David Weinberger formerly worked for The Heritage Foundation. He currently blogs at diversityofideas.blogspot.com.

    This article was originally published on FEE.org. Read the original article.