Cooking the Books 1 – Who benefits from tariffs?
‘Tariff’, Trump has repeated many times with typical exaggeration, ‘is the most beautiful word in the dictionary’. He seems to see it as a cure-all that will Make American capitalist manufacturing industry Great Again. This may just have been crude vote-catching but this illusion evidently caught the votes of quite a few workers.
A tariff is a tax on imported goods and is usually introduced to protect the profits of domestic producers of the same goods. These will have been complaining of being out-competed by ‘cheap imports’ and ‘unfair competition’ and will have lobbied politicians to do something about this. The tariff is paid by the businesses that import and sell the goods in question (it is not paid by the country from which the goods are imported, as Trump sometimes implies). In the first instance it is the importers who will be impacted. Because they will be making a smaller profit, they will import less and, in accordance with the law of supply and demand, the price of the good on which the tariff has been imposed will go up, whether imported or produced domestically. This will make domestic producers more competitive and so enable them to maintain or restore their profits.
This is obviously something that will appeal to the domestic producers concerned but what about other sections of the capitalist class? If the tariff-hit goods are sold to capitalist firms as materials or components for what they produce and sell, these firms will not be so happy as this will increase their costs. If they are consumer goods sold to workers this will increase the pressure on employers generally to pay higher wages (not to increase living standards, but simply to maintain them). If the consumer good is part of the basket of goods used to compile the consumer prices index, whose increase is regarded as a measure of ‘inflation’, then inflation in this sense will go up.
In terms of employment, the workers in the protected industry will keep their jobs for a little longer before automation catches up with them. On the other hand, some workers in other industries will lose theirs.
The overall effect of imposing a tariff will be to raise some prices and not just of the goods on which the tariff is levied. The main beneficiaries will be the domestic producers of the goods in question. Their profits will be ‘protected’.
However, there are other considerations. To be effective in protecting the profits of a particular sector, a tariff needs to be imposed not just on the good coming from one country but on it coming from any country; otherwise the importers of the good could still import it. Which will be why Trump has talked of imposing a tariff on some goods (steel and aluminium) wherever they come from. Another complication is that the country singled out will likely impose counter-tariffs which would harm sectors producing for export. The EU and China will be tougher nuts to crack than Canada or Mexico.
Although Trump gave the impression on the campaign trail that American manufacturing industry will expand and thrive behind protective tariff walls, his first use of tariffs has been as a bargaining tactic. To impose them and then open negotiations with the other capitalist state about what it needs to do to get them removed.
Tariff protection has unintended side-effects and, in any event, does not benefit all sections of capitalist business in the country imposing the tariffs. The working class of the country as a whole is not affected much either way, if only because their wages are tied to the cost of living and tend to go up or down as it does. It is not a working-class issue.