The Trouble With Tariffs

I try to read a variety of information sources, but I will be the first to admit that–if it weren’t for my architect husband–Engineering News Record would not be among them. It is a print publication that considers itself “the construction resource,” and focuses on matters like the reason for that Italian bridge collapse and the technology of road paving. These are subjects that fascinate my husband, but usually aren’t among my preoccupations.

However, there is a real virtue to reading such publications for a policy person, because they report on the practical implications of what might otherwise be abstract and ideological policy debates. That is exactly what the most recent issue did in its discussion of Trump’s misbegotten tariffs, inĀ an article titled “Equipment Readies for Tariff Fight.”

As the article reported, “the reality of new surcharges on all sorts of imported materials and finished goods has begun to reverberate through the global supply chain for construction equipment.” And that global supply chain is complicated–something a ham-handed and ill-considered policy can disrupt in unexpected ways and with unanticipated consequences.

The (sobering) points made by the article can be summarized by a quote from a vice-president of the Association of Equipment Manufacturers: “Everyone loses in a global trade war. Tariffs are taxes on American consumers and businesses.”

Major manufacturers have already raised their prices in anticipation of the higher up-front costs of steel and other materials. According to Senator Chuck Grassley, tariffs the administration aimed at imports of automobile components have also hit heavy-duty trucks, buses, construction equipment, agricultural equipment and industrial engines. As those prices increase, they’ll be passed along, so prices paid by consumers will rise. (There has already been a 32% rise in the cost of hot-rolled, coiled steel.)

Some 30% of of the construction equipment manufactured in the U.S. is designated for export, and the imposition of tariffs has “upended” the industry, which had been anticipating a period of strong sales. As a consequence, according to industry spokespersons, manufacturers are likely to shift production to “places like China or Brazil.”

These tariffs and retaliatory tariffs will put U.S. manufacturing at a disadvantage, because dozens of OEM’s have facilities around the world. It will tip the balance and they’ll just move out of the U.S. to make the equipment somewhere else.

The decision whether to shift the locus of manufacturing is only one of the consequences that has yet to be felt; as the article quoted one construction industry representative,

The point about tariffs is the effect doesn’t come the day after, it comes the year after. The economic impact, the loss of jobs, the loss of business in the community–that is a very long-term effect.

There is a reason that opposition to tariffs bridges ideological divides. Both conservatives and liberals recognize the negative effects of these sorts of interventions into complex and interrelated markets. Unfortunately, we have a President whose policies (if they can be dignified by the term) do not rest on any theoretical or philosophical framework. Instead, he acts out of bile and petulance, complicated by utter ignorance of the matters he is disrupting.

The Engineering News Record says these tariffs pose a significant threat to the construction equipment industry’s prosperity. But the damage isn’t limited to the construction equipment industry. Tariffs pose a significant threat to job creation, consumption and general American prosperity–a threat that could have been avoided had we elected someone competent, or even someone who had–and heeded– competent advisors.