The dangers of tariffs

Box of apples
Washington state industries are especially vulnerable to hardships related to trade, and stakeholders agree that strides should be made to address tariffs sooner rather than later. Photo: wongaboo.

Leadership representing trade and business agree that tariffs create a long-term hindering effect on Washington state industries and impede the effectiveness of trade until trade agreements can be reached.  They say the trickledown effect ends up harming the state economy, causing a loss of customers for companies navigating trade barriers and also driving consumer prices up when companies lose the ability to absorb cost increases.

To that end, a recent International Monetary Fund (IMF)’s study analyzed tariff changes across five decades and determined that the escalation of tariffs have negative effects related to productivity and employment.

Key takeaways from the study include:

  • Increased tariffs cause lower output and productivity and lead to more unemployment;
  • Tariffs cause rerouting of products to ineffective producers to avoid the extra costs; and
  • Levies result in a “deadweight loss,” where consumers lose more than producers gain.

The authors conclude the study by saying that the research strengthens the case for free trade in lieu of protectionism.

Lori Otto Punke, President of the Washington Council on International Trade (WCIT), told Lens that the impacts of a trade war are especially consequential for Washington state, as 40 percent of jobs are related to trade.

“When there is a decline in cargo traffic coming in and out of Washington ports, that definitely impacts transportation-related industries and could have major repercussions for this economy,” she said.

As costs of production increase, fewer investments will be made on jobs and businesses having to cut back on costs could also result in a cut to labor, added Punke.

“We are very concerned about what that would like for Washington jobs and how quick of a decline you could see as a result of lingering and reciprocal tariffs.”

Another concern is the difficulty of repairing supply chains and trade relationships disrupted by the implementation of tariffs, which often are difficult to repair once the levies are no longer in effect, she said.

Consumers also lose out during trade wars. Punke said she has talked with company heads who say they are holding off on passing the cost on to consumers, but they cannot do that indefinitely as the trade war continues.

“It’s not just the cost of services and goods, but the cost of day-to-day needs like food starts to increase and takes away from the economic food chain…tariff increases lead to consumers buying less.”

Although WCIT understands that trade issues must be resolved, Punke added that tariffs may not be the best way to remedy those issues. “We are eager to find a quick resolution to this to suspend tariffs and make sure there is a more level playing field for Washington businesses in markets abroad.”

Amy Anderson, Government Affairs Director for the Association of Washington Business (AWB), told Lens that although tariffs may help domestic industries in the long run, they also have lingering long-term effects that harm key industries within the state.

“Our local ag folks and farmers are looking to reduce their profit to combat tariff prices to keep their customers,” she said.

For the short term, members of the agricultural community must trudge through any challenges, according to Anderson. The long-term positive aspect of trade negotiations will be having a level playing field, and they are asking for change to fix market inequities. One example is Washington’s tart cherry market which continuously imports fruit from Turkey while there remains a surplus of tart cherries produced by state growers.

Anderson agrees that there is a danger in losing trading partners, citing the port shutdown which caused the state’s apple and Christmas tree businesses to lose market share when customers looked elsewhere. Even if those customers did decide buy Washington products again, it took time and effort.

Tariffs can also have positive effects on local industries, according to Anderson. Steel manufacturers experienced a short-term increase to their bottom line because a perceived shortage of domestically produced steel caused artificial price inflation. However, Washington manufacturers purchasing materials domestically still pay high prices because of that artificial price increase.

Anderson praised work being done involving the United States’ neighboring trading partners as part of the United States-Mexico-Canada Agreement (USMCA) which will replace the North American Free Trade Agreement (NAFTA).The new agreement would remove obstacles for American dairy farmers trying to sell their products in Canadian markets, for example.

“The ability to have trade relationships with other countries is going to bolster the Washington state economy significantly, but we need to have agreements in place that are fair and equitable to all parties concerned,” said Anderson, adding that state industries cannot operate on a consistent deficit with other countries.

LEAVE A REPLY

Please enter your comment!
Please enter your name here