Last year, a Michigan-based washing machine maker called Whirlpool complained that it was being undercut by Chinese imports.
Rather than reduce its costs, improve its productivity, or (if washing machines can truly no longer be manufactured competitively in the United States) switch to something more profitable, the company demanded that President Trump act against its rivals.
Such requests are, of course, music to the president’s ears. He promptly slapped a tariff on Chinese washers that started at 20% and rose, by the end of last year, to 50%. Such tariffs, President Trump tells us, protect American jobs from unfair foreign competition. And, he adds, it’s foreigners who foot the bill, since the tariff revenue goes to the U.S. Treasury.
The trouble is, that’s not how it works. A tariff is paid, ultimately, by American consumers. And the cost is always — always — higher than any notional gain to U.S. manufacturers.
The washing machines serve as a textbook case. A new study by economists Aaron Flaaen, Ali Hortaçsu and Felix Tintelnot evaluates the impact of the tariffs in impressively granular detail. Their conclusions, published by the Becker Friedman Institute at Chicago University, are lengthy and comprehensive, and I have read them so that you don’t have to.
First, the good news. The tariffs did indeed prop up some American manufacturing jobs, 200 of them at Whirlpool’s factory in Clyde, Ohio, plus another 1,600 in subsidiary operations: chiefly a Samsung plant in South Carolina and an LG installation in Tennessee. And, yes, they raised a certain amount of revenue. The authors calculate that the U.S. Treasury took an extra $82 million in levies on the imported machines.
But now, let’s look at the costs. Tariffs, obviously, pushed up the price of Chinese washing machines. After falling for years, they jumped by, on average, $86 per unit. The tariffs also, perhaps unsurprisingly, raised the cost of domestic washers. Whirlpool responded to the higher retail price of its rivals by whacking up its own prices.
But there’s more. As the price of washing machines rose, so did the price of clothes-dryers, which were not directly affected. It turns out that most people buy washers and dryers together. Instead of hiking the price of the washer, and so making it appear unbalanced, retailers raised the price of both items, typically by 11.5% each. That’s less than the 20% tariff on the washer, but more, obviously, than the 0% tariff on the dryer.
The total cost to American consumers was $1.5 billion. In other words, those 1800 jobs were saved at a cost of $817,000 each.
Think about that eye-watering sum for a moment. The $1.5 billion extra that Americans had to spend on their washers and dryers was money that they then could not spend on other things. Every other sector of the economy suffered a little bit. Jobs were lost — almost certainly more than 1800 of them, though that calculation was beyond the scope of this particular study.
But (and here we come to the nub of the problem) the people who lost those jobs will not know to blame the washing machine tariffs. They outnumber the 200 Whirlpool employees many times over, but only the Whirlpool workers might switch their votes on the issue. That is why Trump is able to get away with this premodern approach to economics. And it is why the Congress, whose members know better, keeps letting him.
On its own, a tariff on washing machines won’t crash the American economy. It will be more than offset, at least in the short term, by the recent reductions in regulations and taxes. But these things add up. With every month that passes, the U.S. becomes less open, and the prospect of a full-scale trade war with China increases.
If nothing else, detailed studies like this one remove any excuse that lawmakers might have had for inaction. They can’t seriously argue that the jury is still out on protectionism, or that the arguments are balanced. The negative impact is unambiguous. By placing barriers between businesses and their customers, the federal government is raising prices, destroying jobs, and making America needlessly poorer. For what it is worth, it is also alienating potential allies and forfeiting the moral leadership on which American preeminence rests.
Come, congressmen. You can see the problem, and you have the power to do something about it. Part of your job, after all, is “to regulate Commerce with foreign Nations.” What are you waiting for?
