In March 2002, President George W. Bush imposed a 30% tariff on Chinese steel. The results were chaotic. In a report put out by Consuming Industries Trade Action Coalition in February of that year, the coalition found the tariffs against China boosted the overall prices of steel and cost the U.S. 200,000 jobs in businesses that buy steel, representing $4 billion.
In another recent situation, in September 2009, President Obama imposed a three-year tariff on car tires from China. Chinese imports went down, but the tires were simply sourced from other countries, the LA Times noted. According to the Peterson Institute for International Economics, 1,200 tire jobs were saved in the U.S., but through costs passed along to American consumers, 2,500 jobs were lost indirectly.
In Bush’s case, seven months after the tariffs were imposed more American jobs had been lost than Americans employed by domestic steel producers. Writing about the trickling effect of trying to help a certain domestic industry, CITAC noted: “In making policy for the revitalization of manufacturing, including the steel industry, our conclusions suggest that the effects across the full industrial spectrum should be considered.”
It is not clear if this full industrial spectrum has been considered by the Trump administration, which said it was considering implementing a 20% tariff on goods imported to the US from Mexico—a move that would require the US leaving NAFTA. “By doing it that way we can do $10 billion a year and easily pay for the wall just through that mechanism alone,” Trump Press Secretary Sean Spicer said Thursday.
In Trump’s view, the wall will pay for itself by ultimately saving money the US would spend on finding and deporting undocumented immigrants. “I think we are going to save additional money that we would have had to spend on tracking down illegal immigrants and on immigration. So it’s actually a huge win for the American taxpayer,” Spicer said.
Numerous studies show this would not alleviate those costs. As a series of studies from economists like Giovanni Peri, a researcher at U.C. Davis, indicate, these workers take undesirable jobs Americans don’t want, and allow Americans to take jobs with higher skill levels and complexity. As a Wisconsin farmer told Politico of the Mexicans who milk cows, “the white boys won’t do that kind of work.” In the 2000s, immigrant work caused no increases in the poverty rate in any state.
Barclay’s, which performed an analysis on the 20% tariff option, found core inflation rates could go up a full percentage point per year, and a GDP growth reduction of up to 1.5 percentage points. The analysis also pointed to the potential for similar issues faced by Japan after it implemented a VAT in 2014 and saw GDP decline of 4 percentage points.
Trump may increasingly find himself between a rock and a hard place. Either he focuses on paying for one of his signature campaign issues, a widely unpopular border wall that will cost $120 per person—most Texans don’t support it, only 26% think it’s important, according to Gallup—or make policy for the “revitalization of manufacturing” that considers “effects across the full industrial spectrum,” as CITAC recommended, and keeps prices down for consumers. If the 20% tariffs are implemented, those prices will likely get passed to ordinary Americans, sending them the bill for the wall, not Mexico.