Tariffs hurt consumers
In my March editorial, I discussed the impact of steel and aluminum tariffs on assemblers of steel and aluminum products. However, another constituency has also been affected by tariffs: U.S. consumers.
That was the conclusion of a new study published in April by economists at the University of Chicago and the Federal Reserve. The researchers found that, after tariffs were imposed on all washers imported to the U.S., prices increased by 12 percent in the first half of 2018 compared to a control group of other appliances. In addition, prices for dryers also rose by 12 percent, even though dryers were not subject to a tariff.
In December 2011, South Korea and Mexico, the leading exporters of washers to the U.S., were charged with dumping the appliances on the U.S. market. To protect domestic producers, tariffs were placed on washers imported from those countries. A month later, imports of washers from South Korea and Mexico started to fall, while imports from China increased. China quickly became the largest exporter of washers to the U.S.
In 2016, China was subsequently accused of dumping, and tariffs were imposed on Chinese imports. Just like that, imports of washers from China decreased, while imports from Thailand and Vietnam increased. In short, manufacturers were “country hopping,” chasing cheap production around the globe.
Finally, in February 2018, the U.S. applied a worldwide tariff on imports of washers. Imports spiked at the end of 2017—manufacturers were overstocking ahead of the tariff—then fell steeply once the tariffs were applied.
Despite all that, washer prices actually decreased from 2011 to 2017. In 2018, however, the price of washers increased 12 percent. What’s more, prices also rose at the same rate for dryers, even though they were not subject to tariffs. All brands (domestic and foreign) posted notable price increases following the 2018 tariffs. Foreign makers raised prices to compensate for the tariffs, but domestic companies increased prices, too, simply because they had the market clout.
One revealing finding of the study is the tight price relationship between washers and dryers. The machines are typically marketed as a set, and consumers often shop for both at the same time. So, rather than raise the price of a washer by 20 percent, appliance assemblers raised prices for washers and dryers by 11.5 percent each.
The researchers also examined the underlying goal of the tariffs: to increase domestic employment. That appears to be happening. Samsung opened an assembly plant in South Carolina in January 2018 with plans to hire 1,000 workers by 2020. LG opened an assembly plant in Tennessee in February 2019, offering 600 jobs. And, Whirlpool is adding 200 workers to its workforce.
The researchers estimate that the higher appliance prices translate into a total consumer cost of $1.5 billion per year, or about $820,000 per new job.
In the end, there are two lessons for policymakers: Tariffs applied to individual countries may be ineffective, and tariffs applied globally tend to result in significant costs to consumers. Domestic producers benefit from increased market share, and domestic workers benefit from increased employment. However, those benefits will hit consumers in the pocketbook.