Monday, July 09, 2018

U.S. exporters likely to be surprise losers in tariff fight

Though it may seem counterintuitive, history and economists say that exporters usually end up losing when tariffs are imposed on imports. And though it's early, that seems to be what's happening to U.S. exporters under President Trump's new tariffs: "Soybean farmers face plunging prices as China raises tariffs, Harley-Davidson will move production of motorcycles destined for the European Union out of the U.S., and BMW says foreign retaliation may hit exports from its South Carolina plant," Greg Ip reports for The Wall Street Journal.

Though the phenomenon was known as far back as the 1600s, economist Abba Lerner proved in 1936 that an import tariff is tantamount to a tax on exports. That link was especially strong while the U.S. was still under the gold standard, but is still holds sway. "If the U.S., for any reason, cuts its imports from a trading partner, that country’s economy and currency both weaken, so it buys less from U.S. companies," Ip reports. "If a tariff generated significant new demand for the protected American sector, the resulting boost to prices and jobs would put upward pressure on inflation, interest rates and the dollar, further hurting exports.

Click here for more on how tariffs have historically affected commerce and what's likely to happen next in the U.S.

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