First, Whatever you heard about TTP's effect on environmental obligations is wrong. The U.S. got a level the playing field by imposing rigorous environmental standards on trading partners, as well as labor standards.
Second, in the short run we can't replace Chinese goods for American goods, since China has a complex supply chain developed over a long time.
Third, our action causes retaliatory tariffs, as our farmers are discovering (and is the current topic here.) Economists from Columbia, Princeton, and the New York Federal Reserve released a paper, “
The impact of the 2018 trade war on U.S. prices and welfare,” that used detailed import data to assess the tariffs’ impact. The conclusion: to a first approximation, foreigners paid none of the bill, U.S. companies and consumers paid all of it. And the losses to U.S. consumers exceeded the revenue from the new tariffs, so the tariffs made America poorer overall.
These price hikes led to substantial changes in behavior. Imports of the tariffed items fell sharply, partly because consumers turned to domestic products, but also in large part because importers shifted their sourcing to countries that aren’t currently facing Trump tariffs. For example, a number of companies already seem to have begun buying goods they previously bought from China from
Vietnam or Mexico instead.
These changes in behavior are the key to the paper’s conclusion that the tariffs have made America poorer.
Consider the following example: pre-tariff, the U.S. imports some good from China that costs $100. Then the Trump administration imposes a 25% tariff, raising the price to consumers to $125. If we just keep importing that good from China, consumers lose $25 per unit purchased – but the government raises an extra $25 in taxes, leaving overall national income unchanged.
Suppose, however, that importers shift to a more expensive source that isn’t subject to the tariff; suppose, for example, that they can buy the good from Vietnam for $115. Then consumers only lose $15 – but there is no tariff revenue, so that $15 is a loss for the nation as a whole.
But what if they turn to a domestic supplier – say, a U.S. company that will sell the product for $120. How does this change the story?
Here the crucial thing is that producing a good domestically has an opportunity cost. The U.S. is near full employment, so the $120 in resources used to produce that good could and would have been employed producing something else in the absence of the tariff. Diverting them into producing what we used to import means a net loss of $20, with no revenue offset.
Fourth, getting back to TPP, just to remind: TPP was a free-trade agreement that the Obama team forged with Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. It was not only the largest free-trade agreement in history, it was the best ever for U.S. workers, closing loopholes Nafta had left open. TPP included restrictions on foreign state-owned enterprises that dumped subsidized products into our markets, intellectual property protections for rising U.S. technologies, like free access for all cloud computing services, but also anti-human-trafficking provisions that prohibited turning guest workers into slave labor, a ban on trafficking in endangered wildlife parts, a requirement that signatories permit their workers to form independent trade unions to collectively bargain and the elimination of all child labor practices, all to level the playing field with American workers.
