When it comes to understanding the impact of tariffs on American consumers, CNN recently offered a powerful example.
Deer Stags, an American company that imports shoes from China, has to pay the tariffs that former President Donald Trump put in place and President Joe Biden decided to continue when the shoes are accepted at port. That adds 7.5% to the cost.
The next step is to decide whether to absorb that cost, eating into company profits, or to pass it on to customers who buy shoes.
When the tariffs took hold during the Trump administration, the company decided to do a bit of both. Existing shoe lines remained at the same price, but new lines became more expensive — much more so than they would have been without the tariffs.
Company President Rick Muskat told CNN he would like to find an American supplier, but they have, for the most part, moved overseas.
Some other importers found suppliers in other countries, and China’s share of shoe imports have fallen. The cost of shoes, however, has not, with suppliers in other countries also taking advantage of the opportunity to raise prices.
Economists like to call tariffs a hidden tax increase. This is not because they are secret. It is because they are billed as penalties on other countries, not on Americans. However, they end up costing American households and employers dearly.
The Tax Foundation, a Washington-based nonprofit, recently called Trump’s decision in office to raise tariffs “one of the largest tax increases in decades.” But, lest Democrats try to use that as a campaign focus, Biden added to that tax hike in May by raising tariffs on another $18 billion worth of goods from China — items that include semiconductors and electric cars.
The Tax Foundation measured the Trump tax hikes at $80 billion, and Biden’s add-on at $3.6 billion. This has cost the average American household $625 more per year, it said.
But this, the foundation said, is a low number because it doesn’t “factor in the lost output, lower incomes, and loss in consumer choice the tariffs have caused.”
The effects on the economy are real. “We estimate the Trump-Biden tariffs will reduce long-run GDP by 0.2%, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs,” said a foundation report authored by senior economist Erica York.
Of course, because politicians sell tariffs solely as penalties on trading partners who are engaging in unfair practices, they seldom become linked with the losses they cause at home.
But, not to be outdone, Trump is now campaigning on a promise to supercharge these tariffs, if he is elected, to up to 200% on Chinese electric vehicles and 10% on all U.S. imports.
Yes, China has been subsidizing electric vehicles and other items, undercutting U.S. manufacturers. Subsidies come at a cost, however, making it harder for China to spend money on weapons and other items.
And yes, there is a legitimate national security argument to be made for higher tariffs on Chinese products.
As Desmond Lachman, a senior fellow at the American Enterprise Institute, wrote recently, the Chinese economy is already in decline. Further tariffs increase “the chances that China, like Japan before it, will now experience a lost economic decade in the wake of the bursting of its property and credit market bubble.
“No longer will it be able to export its way out of its economic funk by using foreign markets to provide the demand for its domestic overcapacity problem. Any attempt to do so will only invite more U.S. trade restrictions.”
In the meantime, however, there is little denying the negative effects on both nations. As a CBS news report said, economists from left to right agree the result is a tax on U.S. consumers, and the resulting increases in prices will add to the nation’s inflation problem.
CBS quoted Kimberly Clausing of the nonpartisan Peterson Institute for International Economics as saying, “If you are an economist, you know right away that tariffs are taxes. If you put a tariff on imported goods, it means they become more expensive” and competitors can raise their prices.
If a trade war with China is necessary in order to reduce threats to U.S. national security, the nation’s presidential candidates should be upfront about that. But they also should be upfront about the costs to Americans.
Without that context, Americans will be debating whether Congress should allow the Trump-era tax cuts to expire at the end of 2025 without the context of what tariffs are quietly doing to Americans who are in search of Deer Stags shoes and any number of other items.