Last week, President Trump approved two new tariffs recommended by the United States Trade Representative, the interagency Trade Policy Staff Committee, and the U.S. International Trade Commission (ITC). The recommendations stem from ITC investigations into the increasing number of imported washing machines and solar panels and their effects on competing U.S. industries. Though the tariffs are said to protect Americans, it’s crucial to think through their effects for all actors in the economy, not just the competing industries.
As a review, tariffs are excise taxes on goods produced abroad, and they are intended to increase consumption of goods manufactured at home. They accomplish this by increasing the prices of foreign goods, to sway consumers to instead purchase domestic goods. For consumers, a tariffTariffs are taxes imposed by one country on goods imported from another country. Tariffs are trade barriers that raise prices, reduce available quantities of goods and services for US businesses and consumers, and create an economic burden on foreign exporters. has effects similar to that of a sales tax—it increases prices.
These are the first tariffs of the Trump presidency, and they rely on a rule that has not been used since 2002. After ongoing ITC investigations into the trade practices of competing countries and import surges of these products, the President used his authorization to impose safeguard tariffs. It is worth mentioning that the last time this rule was used, the World Trade Organization ruled against the United States and the tariff was revoked.
In the washing machine case, the duties contain a quota-like element where imports above a certain threshold have a higher tariff. The rate reaches up to 50 percent on finished washing machines and on washing machine components, and is phased down over a three-year period.
| Year 1 | Year 2 | Year 3 | |
|---|---|---|---|
|
First 1.2 million imported washers |
20 percent | 18 percent | 16 percent |
|
All subsequent imported washers |
50 percent | 45 percent | 40 percent |
|
Tariff of washer parts |
50 percent | 45 percent | 40 percent |
|
Washer parts excluded by tariff |
50,000 units | 70,000 units | 90,000 units |
The new tariff on imported solar cells and modules is an additional duty, and it follows a similar gradually decreasing pattern. It includes an exclusion threshold for imported cells (unassembled electronic components), but not for imported modules (the assembled package).
| Note: First 2.5 gigawatt of imported cells are excluded from the increased tariff. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year 1 | Year 2 | Year 3 | Year4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Tariff increase |
30 percent | 25 percent | 20 percent | 15 percent | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Generally, tariffs result in consumers paying more for goods than they would have otherwise in order to prop up industries at home. Tariffs have other effects, too. As consumers spend more on goods on which the duty is imposed, they have less to spend on other goods—so, in effect, one industry is propped up to the disadvantage of all others. This results in a less efficient allocation of resources, which can then result in slower economic growth.
While tariffs may sustain production of certain goods and services at home, they do so at a cost. Though industry estimates must be taken with a grain of salt, one group has estimated that the solar tariffs will cost approximately 23,000 jobs in installation, engineering, and project management this year and will result in the delay or cancellation of billions of dollars in solar investments. They estimate that in the long run, up to a third of the 260,000 Americans employed in the industry could be at risk. As for washing machines, it is likely that every consumer who wishes to purchase one will pay a higher price.
Both tariffs are the result of years of trade litigation to remedy unfair foreign trade practices such as government subsidies that enable goods to be sold below the cost of production. But, as is the case with taxes, it is crucial for policymakers to consider not only how tariffs will impact the interested groups immediately but also how they affect all groups, including consumers and other industries, in the long run.
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