Economists: Higher tariffs would hurt Washington farmers, consumers

Washington consumers, and especially farmers, would suffer if the United States pushes a new round of higher tariffs where foreign countries would pay inflated costs to sell their goods to American consumers, two local economists said.

As the national election enters its final days, politicians, led by former President Donald Trump, continue to promise an economic revolution through tariffs of 10%, 60% or even higher on some goods, that he said would raise revenue, lower the national debt and create more jobs .

Under his first administration, Trump did just that with tariffs on aluminum and steel in 2018 that prompted China, India, Mexico and others to buy fewer agricultural products.

“To me, the most beautiful word in the dictionary is tariff. And it’s my favorite,” the Washington Post quoted Trump in Chicago earlier this month. “I’m a believer in tariffs.”

Vice President Kamala Harris has criticized additional tariffs promised by Trump during the 2024 campaign as a “sales tax” on U.S. consumers, but she has not made clear what her own trade policy will entail.

As a result of those previous tariffs, the Trump administration paid $28 billion in taxpayer money as a bailout to farmers. That amount was higher than the cost the U.S. spends to maintain its nuclear arsenal and larger than the budget of several government agencies.

Randy Fortenbery, agricultural economics professor at Washington State University, said India was a major apple buyer from Washington before the previous tariffs placed on aluminum and steel under Trump.

“Our apple imports to India went to almost nothing,” Fortenbery said. “In a trade war, they will always focus on U.S. agriculture. That’s our surplus sector. We have already seen declines in exports to China this year, but tariffs would exacerbate that situation.”

As long as countries have had economies, world leaders have sought to use tariffs to both protect their economies and force others to pay more to get access to the homegrown consumers, said Grant Forsyth, the chief economist at Avista Corp.

Forsyth researched the history of tariffs in the U.S. prior to the Civil War for his 1996 doctoral dissertation at WSU.

Forsyth blamed politicians on both sides of the aisle, mainly the far left and the far right, for seeking votes by promising economic changes that have for hundreds of years been tried and largely discarded because of complex and often unforeseen ramifications.

“We have the same problem now. Tariffs are going to raise the cost of both inputs that companies are buying but also the finished products that consumers buy. It is probably going to increase the costs for everybody,” Forsyth said.

And those hardest hit would be low-income Americans who continue to deal with higher prices for everyday goods even though the rate of inflation recently has started to come down.

Forsyth called a national tariff a regressive tax.

“It affects lower -income folks more negatively than higher -income folks,” he said. “It works very similarly to the sales tax in Washington state. For a state like Washington, we are very dependent on international trade. You are going to layer on a regressive tax system on top of a state tax system that is already pretty regressive.”

By regressive, he means that taxes, like the sales tax which charges everyone the same amount, hurts lower -income residents harder because it takes a higher percentage of their income versus someone who earns more money each month.

Politicians often over simplify the impact of charging other countries higher rates to purchase U.S. goods.

“Both parties don’t understand that if you impose tariffs, countries may respond with their own tariffs on what you are producing in a way that doesn’t necessarily leave you better off,” Forsyth said. “I would just warn people that what you are hearing as benefits of tariffs are not capturing the full cost of a tariff.

“I think people are getting a very biased view from the extremes of both parties about what tariff protection can do.”

Protect our markets

Prior to the Civil War, the U.S. government used tariffs as one of its primary sources of revenue.

But it tended to benefit the manufacturing in the north over the cotton producers of the south who feared tariffs instituted in the north would cause British buyers to stop U.S. imports, Forsyth said.

“We moved away from the tariff for a lot of good reasons,” Forsyth said. “It wasn’t an accident.”

He noted that the country undertook a major shift in 1913 when the U .S. instituted the federal income tax.

“Countries began to understand that internal taxation … would essentially bring a more stable source of revenue,” he said. “After World War II, tariffs across the globe began to diminish. Everybody wanted an environment where trade was a little bit freer than what we had seen in the past.

“It was very successful.”

Fortenbery, of WSU, said prior to 1913 one could make the argument that tariffs could help a company that made one product by leveling the playing field with foreign competitors.

“But those companies weren’t multinational,” he said.

Most corporations now have offices, distribution or manufacturing in many different places. For example, he mentioned U.S. Steel, which produces iron-based products in Mexico, Europe and the U.S.

“In a tariff war, they are paying tariffs in every direction,” Fortenbery said.

Trump tariffs

Trump’s first tariff rollout eventually hit about $360 billion worth of Chinese imports starting in 2018.

After Trump lost the election, President Joe Biden, who during the 2020 campaign had criticized Trump’s trade policies, did a peculiar thing: He kept most of Trump’s tariffs intact.

Then in May, the Biden-Harris administration raised the tariffs on $18 billion more of Chinese electric vehicles, batteries and computer chips.

Not to be outdone, Trump then announced a plan for 60% tariffs on $427 billion in goods that China ships to the U .S. and a 10% duty on the $3 trillion in merchandise that the U.S. imports from all countries each year.

If that were to become policy, Americans could see higher prices for everything from groceries, gasoline to coffee, Douglas A. Irwin, an economist at Dartmouth College, told the Washington Post.

“We are talking about a plan of historic significance: It would be enormous, and the blowback would be even more enormous,” Irwin said. “This would stand way off the charts.”

Irwin, who wrote a 2017 book on the history of U.S. trade policy, agreed with Fortenbery that multinational companies with complex and far reaching structures would make tariffs very difficult to navigate.

“The world economies are now so interwoven with each other – to rip and pull that apart would be incredibly disruptive to the U.S.,” Irwin said. “It would really ripple through the economy in ways that are very hard to predict.”

Brian Hughes, a Trump campaign senior adviser, dismissed the predicted outcomes from higher tariffs.

“Just like 2016, Wall Street and so-called expert forecasts said that Trump policies would result in lower growth and higher inflation, the media took these forecasts at face value, and the record was never corrected when actual growth and job gains widely outperformed these opinions,” Hughes said in a statement to the Washington Post.

“These Wall Street elites would be wise to review the record and acknowledge the shortcomings of their past work if they’d like their new forecasts to be seen as credible.”

What voters should know

The Coalition for a Prosperous America, which supports higher tariffs, has projected that a 10% universal tariff would generate 3 million additional jobs and lead to a surge in U.S. manufacturing output. It would also bring in trillions in revenue to the federal coffers.

But the Peterson Institute for International Economics said Trump’s projected tariffs would cost the typical household $2,600 per year and the Yale Budget Lab said in an estimate released Wednesday that the annual cost could be as high as $7,600 for a typical household, according to the Washington Post.

Fortenbery noted that tariffs are paid by the importers, not the exporters.

“It’s a tax on consumers. It’s not being explained that way at all,” he said. “It’s being explained as a revenue creator and job creator. The U.S. economy since World War II has grown tremendously, largely because of trade.”

He said tariffs sometimes work if a country starts dumping products below market value. “But I don’t think they will be successful in reducing the government deficit.”

As for raising revenue, Fortenbery said a tariff is like saying the U.S. is going to fix roads by putting a tax on automobile dealers.

“But (dealers) don’t pay to fix the roads, consumers are the ones who pay for the roads,” he said. “The revenue comes from the domestic consumer, not the exporter.”

Forsyth, of Avista, faulted leaders from both parties for failing to explain to voters the risks of a new trade war. He said if you polled 100 economists, 98 would agree with him and Fortenbery.

“What you will get is prices will go up again,” Forsyth said. “That price jump will hit lower-income households harder than higher-income households.

“Now if you are OK with that, if people understood that and say we still need to do something, then fine. But I don’t think either party has done a very good job telling voters … which makes it able for voters to evaluate whether this is a good idea.”

The Washington Post contributed to this report.