Do tariffs contribute to inflation? Opponents of a more aggressive trade posture think so.
Last week Catherine Rampell, The Washington Post's otherwise enlightened columnist, made the argument this way:
"Competition is good except when it comes from abroad, apparently. That's the message from the Biden White House, which promises to tackle inflation by promoting "competition" but doesn't apply this pledge to its own trade policy. Biden has kept most of Donald Trump's barriers to foreign competition -- and those Biden has undone have been largely replaced with different trade restrictions."
She surmised, "Lifting trade barriers, on the other hand, can almost immediately increase competition and reduce prices. That's because tariffs, quotas and the like explicitly shield U.S. firms from competing with foreign rivals, including lower-cost ones. That raises prices for downstream purchasers."
The argument might have been more compelling if not in the same week, it was revealed that the "U.S. trade deficit in goods soared to record levels in 2021, topping $1 trillion as Americans continued to spend heavily on computers, toys, bicycles, clothing, pharmaceuticals and other goods made in foreign factories during the pandemic."
So today the opposite is true: We're importing more products than ever. The floodgates are open. Competition abounds. And we’re paying more for what we import.
Rampell would be on firmer ground if she argued the opposite, that it’s in America’s interest to pay higher prices for products made in the U.S. Those dollars would at least be contributing to job creation here, a reality not lost on many economists. "It's devastating," says Robert E. Scott with the Economic Policy Institute. “All that spending that's falling on imports is creating jobs elsewhere and not in the U.S."
But if the Trump/Biden trade restrictions aren’t inflationary, they’re also not working to persuade U.S. brands to manufacture in the U.S., a stated goal of both presidents.
Last month Outdoor Retailer, the outdoor industry's tentpole trade show, announced winners of its fourth-annual Innovation Awards, a stellar list of products made by America's leading OI brands.
No doubt that the companies are innovating. Yet their manufacturing innovations are happening offshore. Of the 11 products from U.S.-based companies, eight are manufactured offshore, most in Asia, including the winner, the BC Flyline Jacket and Bib from OI stalwart Eddie Bauer.
So whatever our trade policy is, here's what it isn't -- yet: a pro-U.S. manufacturing platform that protects U.S. industry from predatory competition at home even as it provides incentives -- carrots not sticks -- for companies to reimagine U.S. production.
It should also be obvious that as U.S. companies shorten supply chains to manufacture more in the U.S., we'd at once reduce supply-chain disruptions, lower prices, and work to balance America's humiliating trade deficit.
For Rampell and other free-traders, inflation is the new cudgel to beat back the idea that U.S. manufacturing is worth protecting. Yet more imports and endless trade deficits aren't the answer, regardless of short-term political gain. Enabling a new era of domestic manufacturing is the sea change we need.
Bart Taylor is publisher of CompanyWeek. Contact him at email@example.com.