These tariffs are going to hurt. A lot. By my calculations, this round of tariffs may be 50 times as painful as the ones Donald Trump instituted in his first term. That means they are going to reshape your life in much more fundamental ways.
To illustrate how, let’s look at a prosaic example: your washing machine. In 2018, Mr. Trump’s relatively modest tariffs caused washing machine prices to rise by nearly $100. As a result, many families elected to stick with their aging machines longer than they otherwise would have. But that choice incurred a new set of costs: late-night thuds from unbalanced loads, wads of scrunched cloth still dripping wet after a cycle and higher energy and water bills.
In other words, the total cost of a tariff isn’t just what comes out of your checking account. The time you spend to rearrange the stuff in your washer is a cost. The time you spend wringing out sopping wet T-shirts is a cost. Tariffs are costly not just because they raise prices but because they force you to make different decisions that will extract a different kind of cost from you over time.
Small tariffs create small problems. Big tariffs create huge ones. Take Mr. Trump’s 25 percent tariff on vehicles, which is expected to raise their prices by roughly $4,000. Many families, like mine, will probably decide not to buy a second car. That creates far bigger problems than an aging washer. Now, we’re constantly juggling how to get our kids to all their activities, and ourselves to work, with only one set of wheels.
And it’s not just cars. These are across-the-board tariffs, so they will distort virtually every purchase you make. In each case you’ll have to stop your baked-in calculations, recalibrate and find a way to make do — perhaps substituting frozen vegetables for fresh vegetables, a less effective medication for a higher-priced import, or corn syrup for sugar. And in each case, you’re worse off.
By the way, tariffs don’t distort just your buying decisions, they also distort what businesses make. Just as tariffs lead you to buy less desirable alternatives, they lead businesses to channel labor and capital into less desirable — that is, less productive — activities.
The tariffs announced on Wednesday are roughly 10 times as high as most other industrialized countries, and higher than the infamous Smoot-Hawley tariffs (of Great Depression fame).
Mr. Trump’s latest tariffs will lead folks to rethink not only whether to replace their washing machine — as they did in 2018 — but also their dryers, refrigerators, stoves, groceries, clothes, cars and even everyday essentials.
Many of the substitutions we’ll make will be quite painful. If a 1 percent tariff leads you to switch from real guacamole to a pea-based alternative, then you really didn’t care about guac all that much. But if it takes a 20 percent tariff to get you to switch, that’s a sure sign that going without the real thing is a serious hardship. And this is why higher tariffs generate a far greater amount of pain. These forces aren’t independent of each other. They interact. Or in math, they multiply, which means their costs rise in the square of the tariff rate. That leads to some pretty painful arithmetic.
The average tariff rate was about 1.5 percent just before Mr. Trump’s election in 2016. He subsequently raised tariffs on steel, aluminum, washing machines, solar panels and many goods from China, but left much of the rest of the economy untouched. All told, by 2019 he roughly doubled the tariff rate, to around 3 percent — and so effectively quadrupled whatever pain the 2016 tariffs were causing. (Yes, two times two is four.).
Joe Biden kept some of these tariffs, but Mr. Trump’s latest round pushes our current rate to around 15 times its 2016 level, and so squaring that, it’s 225 times more painful. That’s more than 50 times as large than the cost of Mr. Trump’s first term tariff increase.
Perhaps voters pulled the lever for Mr. Trump with warm memories of the good economic times. But the reality of his first term is that there was a lot more tariff talk than action. They were barely more than a bump in the road. This time, they’re a mountain. And so the impact will be more like a crash than last time’s comfortable jolt.
#Opinion #Trumps #Tariffs #Change #Life
