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About the ‘insanity’ of those tariff exemptions for Canada and Mexico … – Publications – AEI

Summary:
AEI About the ‘insanity’ of those tariff exemptions for Canada and Mexico … … is a slightly modified title of an interesting post by economist Timothy Taylor on his Conversable Economist blog, here’s the “money section” (bold added): With a tariff imposed against all trading partners, the higher prices paid by US consumers of steel and aluminum go to two places: 1) higher revenues for US steel and aluminum producers and 2) higher revenue for the US Treasury. Foreign producers don’t benefit. With Canada and Mexico now exempted from the tariffs, the higher prices paid by US consumers of steel and aluminum now go three places: 1) higher revenues for US steel and aluminum producers, 2) higher revenues for the US Treasury and 3) higher revenues for Canadian and Mexican steel and aluminum

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AEI
About the ‘insanity’ of those tariff exemptions for Canada and Mexico …

… is a slightly modified title of an interesting post by economist Timothy Taylor on his Conversable Economist blog, here’s the “money section” (bold added):

With a tariff imposed against all trading partners, the higher prices paid by US consumers of steel and aluminum go to two places: 1) higher revenues for US steel and aluminum producers and 2) higher revenue for the US Treasury. Foreign producers don’t benefit.

With Canada and Mexico now exempted from the tariffs, the higher prices paid by US consumers of steel and aluminum now go three places: 1) higher revenues for US steel and aluminum producers, 2) higher revenues for the US Treasury and 3) higher revenues for Canadian and Mexican steel and aluminum producers, who will also benefit from the higher price.

To understand how strange this is, imagine that someone in Congress proposed this policy to “help” the US steel and aluminum industries. Start by imposing a tax on US domestic users of steel and aluminum, based on how much they used. Then some of the revenues from that tax would be rebated to US producers of steel and aluminum, some would be sent to Canadian and Mexican producers of steel and aluminum, and the rest would be kept by the federal government.

As I have commented before in the context of tire tariffs imposed by the Obama administration some years ago, this way of trying to assist the US steel and aluminum industry seems literally insane once you spell it out in this way. It’s hard to imagine that even the steel and aluminum industries would favor it. But it accurately describes the economic effect of steel and aluminum tariffs with a Canada and Mexico exemption.

MP: Yes, it is literally insane, as were Obama’s 35% tariffs in 2009 on Americans who purchased Chinese tires, as Tim explained in 2012 (bold added):

As US tire imports from China declined, tire imports increased from other countries. Indeed, the US was importing about 27 million tires in the third quarter of 2009, when the tariff took effect, but was importing about 30 million tires by the third quarter of 2009. The tariff on Chinese-produced tires cut imports from China, but tire imports from places like Mexico, Indonesia and Thailand rose. The tariffs on China allowed these producers to raise prices for tires paid by U.S. consumers to the tune of about $800 million.

When tariff policy is laid out in this way, it looks literally insane. No one would ever advocate a policy of imposing a tax worth $1.1 billion on all US purchasers of tires, with $48 million to go to actual workers who produce tires, $250 million to go to US tire companies, and $800 million of the revenue from that tax to go to foreign tire producers.

Bottom Line: In addition to the obvious and verifiable negative effects that protectionism has on domestic employment and consumers, Tim Taylor points out another reason that politicians (including Bush, Obama, and Trump) are so inept at formulating trade policies: they fail to consider all of the long-term and secondary effects of their insanity and ineptness that include transferring wealth from Americans to foreign producers that aren’t subject to targeted tariffs! In other words, at the same time that Trump claims that NAFTA is the “worst trade in history” and the “worst trade deal ever signed,” he exempted those countries from steel tariffs that will allow those countries to raise prices on steel and aluminum and benefit at the expense of American consumers and US steel-consuming industries. The “insanity” of Trump’s exemption of Canada and Mexico from his steel and aluminum tariffs are another great example of why short-sighted politicians like Trump should be prevented from implementing trade policy: they are unwilling or unable to consider all of the long-term and secondary effects of their “insanity” and only consider the short-term political payoffs of trade policies that impoverish the US and Americans in the long run.

About the ‘insanity’ of those tariff exemptions for Canada and Mexico …
Mark Perry

Mark Perry
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.

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