Bernie Sanders's Tariff Plan Hurts Global and US Economy (Bernie Sanders Wrong on Chinese Imports)

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• published: 03 Feb 2016
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Bernie Sanders has proudly touted his record of fighting against free trade agreements, especially ones which reduce taxes on imports. [1] This, despite the historical evidence which shows pro-tariff policies generally lead to retaliatory tariffs, with global trade obstructed in the process. [2] For instance, the Smoot-Hawely tariffs contributed to the Great Depression and are estimated to have been responsible for roughly 10 percent of the overall output decline. This harms families. TRADE IS GOOD FOR MIDDLE AND LOWER CLASS CONSUMERS: ● According to the President’s Council of Economic Advisers, middle-class Americans gain more than a quarter of their purchasing power from trade, with the lowest percentile gaining the most. ● “Perhaps the most broadly shared benefit of increased trade is lower prices for consumers and producers in the domestic market. By allowing our trading partners to produce the goods in which they are relatively more efficient, the United States can import at lower prices than would prevail if we were to use our scarce resources to produce the goods ourselves. This “specialize in what you do best, trade for the rest” philosophy makes everyday goods and services more affordable and enhances the real earning power of American workers’ and families’ current incomes.” ● About half of U.S. imports are actually inputs used in domestic production, so when they're cheaper, it lowers production costs, helping to reduce the final retail price and expand access to lower-income families. ● Economists Fajgelbaum and Khandelwal (2014) note that lower-income consumers spend a larger share of their disposable income on heavily-traded food and clothing items, while higher-income consumers devote a relatively larger share to spending on services, which can be harder or impossible to trade. This implies that international trade is relatively more beneficial to middle and lower class consumers. [3] With tariffs restricting global trade, these benefits would be decreased substantially. TARIFFS HARM OUR EXPORTING JOBS: ● Some studies of U.S. manufacturing industries document that, on average, export-intensive industries pay workers up to 18 percent more than non-export-intensive industries. ● Controlling for industry, location, and worker characteristics, CEA finds that the average industry’s increase in exports in the 1990s and 2000s translated into an additional $1,300 in annual earnings for the typical middle-class worker.” ●Furthermore, for a more conservative estimate, per economists Bernard, Jensen, Redding, and Schott (2007) “the average annual wage at exporting manufacturing firms is 6 percent higher than the average annual wage at domestically-oriented manufacturing firms.” Thus, for those employed in manufacturing, focusing more on exports is beneficial to income. These are saving our workers would lose out on if, after a retaliatory tariff was imposed upon us by former trading partners, we had to decrease exports. VARIETY OF GOODS: ● Reducing tariffs has expanded product variety, from 71,420 varieties of imported goods in 1972 to 259,215 by 2001. ● This increases the living standards of consumers who appreciate more choices and also increased competition among brands to improve quality or reduce price. GLOBAL EFFECT: ● Luckily, the experiment needed to answer the question regarding tariffs global effects happened naturally in the late 80's and early 90's. During this time, multilateral trade negotiations between 125 countries lead to significant reductions in protectionist tariffs. India, for instance, dropped its import tariff rates from 98.8% to 32.5%. ● The results were clear. The countries who agreed to reduce tariffs experienced accelerated growth of 15%–20% above the countries which hadn't. ● Per the OECD, “complete tariff elimination and a reduction in trade costs would bring welfare gains equivalent to 1.37% of annual GDP in developing countries and 0.37% in developed countries.” In other words, tariffs stand in the way of efforts to reduce poverty. In other words, tariffs actually stand in the way of efforts to reduce poverty. DOMESTIC INDUSTRY: ● One may think tariffs “help domestic industry,” but this doesn't account for spillover effects. For instance, Bush's 2002 tariff on Steel set tariffs as high as 30% for three years as to protect producers from foreign competition. In the following years, iron and steel prices jumped 40% [7] [8], costing 200,000 jobs in steel-consuming industries, with about half of those job losses blamed on the tariffs. Absolutely no copyright infringement intended. 'Copyright Disclaimer Under Section 107 of the Copyright Act 1976, allowance is made for news reporting, teaching, scholarship, and research. Fair use is a use permitted by copyright statute that might otherwise be infringing.Educational or personal use tips the balance in favor of fair use'