THE WALL STREET JOURNAL CLASSROOM EDITION
Tariffs are taxes on imported goods. Supporters say tariffs protect American jobs, while critics reply that they hurt consumers by making imported products more expensive. In this debate from The Wall Street Journal Classroom Edition, Jock Nash, a lawyer who represents textiles producer Milliken & Co., and Daniel T. Griswold, an associate director of the Center for Trade Policy Studies at the Cato Institute, discuss whether the United States should set tariffs on imports to protect American industry.
Should industries be protected by tariffs?
YES — By Jock Nash
There is little made in America that cannot be made cheaper and just as well elsewhere. This is made clear by our nation’s chronic and growing manufacturing trade deficit—which is running at the rate of $1.4 billion dollars a day. Currently, we are consuming more than we are producing in goods and services, by a margin of a million dollars a minute.
A growing part of this deficit is attributable to U.S. based companies moving overseas part or all of their production of goods and services destined for consumption in the U.S. market—not in foreign markets as the companies claim. Obviously, these companies would not be manufacturing offshore if a tariff prevented their products from entering the U.S. market at a profit. In 2003, U.S. manufacturing employed 16 million people. This was after losing two million manufacturing jobs in 24 months. Most reports indicate that the majority of these newly unemployed workers drop out of the middle class only to join the countless working poor in the service economy. They are not finding new employment at their previous salaries.
The move to put production of goods destined for sale in the U.S. in other countries effectively destroys the ability of many American workers to earn a good living, as they traditionally have, by adding value to a product whose cost and pricing reflect the realities of the U.S. market. Without protection of some kind—like a tariff— U.S. manufacturing workers are forced to compete head-to-head with foreign workers in the same industry who may be earning pennies an hour. This situation applies to every U.S. industrial sector, from advanced technology products to basic industries.
Nations become great by producing, not consuming. Manufacturing, not trade, is the main source of prosperity. Manufacturing is the engine that increases national productivity and creates wealth. It is worth protecting—by a tariff if necessary.
An import tariff is a tax, plain and simple. By taxing international trade, tariffs impose higher prices on millions of workers, families, and import-using industries for the benefit of a small number of “protected” domestic producers.
Consider steel and sugar. In 2002, the U.S. government imposed tariffs of as much as 30% on imported steel. But domestic steel producers, to improve their earnings, then raised their prices in line with the now higher-priced imports. As a result, the tariffs kept a few extra U.S. steel mills open by allowing them to raise their prices. However, those higher prices hurt American workers in steel-using industries, such as automobiles, home appliances, and construction. In the same way, restrictions on imported sugar benefit a small number of domestic producers at the expense of candy makers and soft-drink producers. And millions of families suffer because they must pay more for all those products at the store.
Imagine how much poorer your family would be if you had to grow your own food and make all you own clothes, furniture, and appliances. The same truth applies to nations. Trade allows people and countries to specialize in what they do best; exchanging their surplus production for what others can produce most efficiently. Through economies of scale—meaning the more you produce of any given product, the less each item costs to produce—trade reduces the cost of such goods as automobiles, jet airliners, and medicines by spreading the high, up-front costs of research and capital among millions of consumers worldwide. Trade brings new technology to poor countries and protects consumers from domestic monopolies.
It’s a myth that manufacturing has declined in the U.S. because of trade. American workers can and do compete successfully with lower-paid foreign workers because better-educated Americans produce so much more per hour of work. Indeed, U.S. factories today produce a greater volume of goods and more sophisticated products then in decades past. Those jobs that have migrated overseas tend to be the lower-paying manufacturing jobs in industries that have been in decline for decades. Protecting such industries with tariffs just keeps wages down by slowing our transition to higher skilled and better paying jobs.
Understanding the Issues
1. What is a manufacturing trade deficit?
2. What does Jock Nash mean by, “U.S. based companies [are] moving overseas part or all of their production of goods and services destined for consumption in the U.S. market—not in foreign markets as the companies claim.”?
3. What does he mean when he says that “the newly unemployed workers drop out of the middle class only to join the countless working poor in the service economy.”?
4. What does he mean in his second paragraph by the term “adding value”?
5. How would a tariff help to save American jobs?
6. Why does Daniel T. Griswold consider a tariff to be the same as a tax on consumers?
7. How does the example of steel show how tariffs don’t really give U.S. companies a competitive edge?
8. How does free trade lead to “economies of scale”?
9. Why do you think Griswold believes trade “protects consumers from domestic monopolies.”?
10. How could protecting U.S. industries (with tariffs) “slow our transition to higher skilled and better paying jobs.”?