Protectionism proves that evidence is unpersuasive
WASHINGTON -- If you are not collateral damage in the escalating trade wars, the bulletins from the wars' multiplying fronts are hilarious reading. You are collateral damage only if you are a manufacturer, farmer or consumer, so relax and enjoy the following reports.
Whirlpool, which makes washing machines and demands for government protection, wheedled Washington into imposing tariffs on, and quotas for, imported machines. Unfortunately for Whirlpool, American steel and aluminum makers horned in on the protectionist fun, getting tariffs -- taxes paid by Americans -- imposed on imports of those materials that, The Wall Street Journal says, account for most of the weight of 200-pound washing machines. And for part of the decline in Whirlpool's share price. And for declining demand for appliances, the prices of which have risen as protectionism increases manufacturing costs and decreases competition.
Citing the threat to America's "national security" from American consumers (they caused 2017's imports of $192 billion worth of cars, 44 percent of all cars sold in America), the administration contemplates imposing tariffs on cars. USA Today estimates that the tariffs would add $4,000 to $5,000 (approximately the size of this year's tax cut on $125,000 in income) to the price of a car (average price: about $32,000). U.S. auto manufacturers oppose the tariffs, which would also cover vehicle components, $147 billion of which ($100 billion more than steel and aluminum imports combined) were imported last year for cars made in America by Americans and sold mostly to Americans.
General Motors' supply chain includes 20,000 businesses worldwide. Of the seven "most American" car models, measured by the value of domestically made components, four are Hondas, three models made in Alabama and one made in Ohio. The number of 2018 models whose parts are all American or Canadian: 0.
However, the hundreds of thousands of Americans employed by Japanese automakers have less to fear than other American autoworkers do from the American government's fears about American consumers' threat to America's security. China, retaliating against new U.S. tariffs on Chinese products, has raised to 40 percent the tariffs on imports of American-made autos. These include BMWs (87,600 of the 385,900 made in South Carolina in 2017 were exported to China) and Mercedes (The Wall Street Journal reports that two-thirds of the approximately 300,000 vehicles made in Alabama are exported worldwide). The New York Times reports that BMW has stopped exporting the X3 crossover from South Carolina to China, shifting production of it to plants in China and South Africa.
Volvo, formerly Swedish but now Chinese-owned, just opened a $1.1 billion South Carolina plant that currently employs 1,200. Volvo has planned to increase employment to 4,000, with half the workers building cars for export, especially to the world's largest auto market, China. (In 2018's second quarter, GM sold 758,000 vehicles in America, 858,344 in China.) So, under current policies, China will impose a 40 percent tax on imports made by a Chinese-owned company.
Last year, soybeans were $12.4 billion of America's $19.6 billion in agricultural exports to China, which might impose a 25 percent tariff on soybeans. The Wall Street Journal reports that University of Illinois and Ohio State University researchers estimate that over four years this "would result in an average 87 percent decline in income for a midsize Illinois grain farm."
The caroms of trade aggressions and retaliations call to mind an experience Gulliver had when his travels took him to the grand academy of Lagado. There he met a man who had worked "eight years upon a project for extracting sunbeams out of cucumbers, which were to be put in phials hermetically sealed, and let out to warm the air in raw inclement summers." To those who say that this is as plausible as trying to produce prosperity with protectionism -- correctly likened to pursuing wealth by blockading one's own ports -- today's trade warriors respond: Have patience. Given sufficient time, protectionism will pay.
But as the comedian Steven Wright says, everywhere is walking distance if you have the time. Speaking of time:
In the 1830s, a Baptist preacher predicted Jesus would return to Earth sometime between March 21, 1843 and March 21, 1844. When the world persisted, its end was re-predicted by the preacher's followers for October 22, 1844. Between March and October, the number of believers increased substantially. Despite their great disappointment on October 23, many followers held to their beliefs and went on to found the Seventh-day Adventist Church. The lesson from this story, as from the protectionists' sunbeams-from-cucumbers economics, is familiar: The persuasive power of evidence is overrated.