From The Greenville News, Greenville, SC, August 2, 2018
Economics professor Scott Baier discusses effects of taxes and what long-term damage they might have on economy
Economics professor Scott Baier discusses effects of taxes and what long-term damage they might have on economy
Anna B. Mitchell Greenville News USA TODAY NETWORK – SOUTH CAROLINA
SPARTANBURG – The chairman of Clemson University’s economics department says tariffs and the threat of tariffs are an unreliable tool at best for negotiating better trade deals for the United States.
Scott Baier, a specialist in the causes and consequences of trade liberalization, offered his assessment of the current trade war during a gathering the Upstate Chamber Coalition. The Trump administration has since the beginning of the year imposed tariffs on washing machines, solar panels, raw steel and aluminum, and a range of Chinese raw materials and components.
Taken together, said Kris Denzel of the U.S. Chamber of Commerce, Presi dent Trump’s 2018 tariffs affect $75 billion in goods, $34 billion of them from China alone. The president has also called for an investigation into automobile and auto parts imports and the pos sibility of a 25 percent tariff on those.
“The current administration uses the notion that we’re going to threaten to put tariffs on or we won’t put tariffs on because we want you to behave better,” Baier said. “In the history of the United States, its ability to use this negotiating tactic to help people behave in a better way, it doesn’t really show up in the data.”
Managers and financial officers from a host of regional small- and medium-sized businesses and manufacturers — including Berger turning tools, Röchling engineering plastics, Tietex industrial fabrics, Hogan construction, Trelleborg tires and the Elliott Davis accounting firm — came to the Spartanburg event with questions about how long existing tariffs might last, whether new ones are likely and what long-term damage they might do to the state’s economy.
Denzel and Baier agreed that no one will know the impact until negotiations conclude and the costs of import taxes work their way throughout America’s complex, globally integrated supply chain.
Uncertainty prevails locally
Charles Johnson, chief financial officer of Leigh Fibers, said much of his company’s business is tied to the auto industry. Leigh Fibers recycles textiles, converting them into lint-like sounddeadening and fire-retardant materials that manufacturers like BMW use to insulate vehicles.
“So far the tariffs have had a minimal impact,” Johnson said. “It’s wait and see.”
Allen Smith, president of the Spartanburg Chamber of Commerce, said the evolving issue has caused unease in the business community.
“There’s one thing that business people value probably above all else,” he said, “and that’s certainty.”
Melody Horton with Elliott Davis said she works with many foreign companies in or considering opening shop in South Carolina. She asked Baier whether he believed Trump’s tariffs and threats of more were just a negotiating tactic.
“We all thought maybe this is just a short-term issue,” Horton said. “But now it’s beginning to feel like it’s the beginning of a trade war.”
“I’d like to believe this is a negotiating tactic, that the Trump administration wants to lower the barriers for our exports,” Baier said, “but it does seem like it’s escalating on our part and the response by other countries seem to be escalating as well.”
Though not good for the economy, he said, the overall costs of the current tariffs — assuming Trump does not follow through on threats to tax the foreign auto industry and billions of dollars of Chinese consumer goods — are about 0.1 to 0.2 percent of America’s gross domestic product (which totals $18.6 trillion compared to China’s $11.2 trillion, according to the World Bank).
“So the costs aren’t large, but they are there, and they will impact certain industries quite hard,” Baier said.
Oft-cited research says tariffs a no-go
In his presentation, Baier referenced an oft-cited 1994 book by Kim Elliott and Thomas Bayard — Reciprocity and Retaliation in U.S. Trade Policy — that examined American protectionist trade investigations going back to the Reagan administration. The authors assessed the success of those investigations, seeing if they opened up foreign markets for U.S. exporters, reduced foreign subsidies or produced better protection of U.S. intellectual property, Baier said.
The Trump administration launched another such an investigation, under Section 301 of the 1974 U.S. Trade Act, to justify the tariffs on China.
“So Bayard and Elliot found that of the 72 investigations filed in the U.S., negotiations were ‘successful’ less than 50 percent of the time,” Baier said. “Of the 12 cases where the U.S. retaliated against foreign competition, success was achieved in only two of the 12 cases.”
Tariffs also have a net-zero effect on jobs, Baier said, because protectionist policies tend to preserve jobs in one sector while threatening those in another.
South Carolina buyers who imported a total of $550 million in steel last year would see costs increase about 20 percent if they were to purchase that same amount of steel now, Baier said. Steel prices have gone up 45 percent since Jan. 1, he added, and aluminum 23 percent.
Consumer product companies such as Coca Cola, Polaris and Sam Adams have announced tariff-related price increases in the wake of these supplychain increases, and the cost of washing machines jumped 16 percent from March to May after Trump imposed a tariff on that industry’s imports.
Carolina auto jobs
Auto tariffs are still on the table, Denzel said, though talks between the Trump administration and the European Union last week look promising and have placed a pause on their going forward.
“This is the big one,” Denzel said of the proposed auto tariffs. “We figure it would have an economic impact maybe about 10 times the size of what we see on steel and aluminum. So you are looking at possibly applying tariffs on about $350 billion worth of imports.”
Car prices would go up $2,500 to $4,500, Baier said, and 1,000 to 2,000 South Carolina jobs in the auto-manufacturing sector would disappear.
Allen Smith, president of the Spartanburg chamber, said people in his county, the home of BMW, are all about talking to trade partners and working out better deals.
“We think it’s necessary that government officials do things to support free trade; however, we don’t think that should be done at the cost of local jobs,” he said. “And unfortunately, based on today’s presentation, that could be an unintended consequence of some of these tariffs.”
