Chao Deng
Appearances
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
Okay, so there are a whole bunch. His administration says that tariffs can raise revenue for the U.S. They can protect American businesses. They can move manufacturing back to the U.S. They can create jobs for American workers. Do you have a sense of what he's envisioning? I mean, he has talked about the U.S. manufacturing glory days.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
these American towns that revolved around like, you know, a single factory. So you remember like when one town revolved around steel making or another town revolved around furniture making or textile making. At that point, you know, to have a good manufacturing job that was well paying was really a way to, you know, become a middle class American family.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
If you walk around, especially down its main street, you can see its legacy of being a booming textile town back in the day. If you drive around enough, you can actually see some of these dilapidated buildings that used to be cotton mills. And then when the textile industry in the U.S. fell back, residents of this town began to flow out.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
There was some farming left, but there really wasn't much going for it.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
You know, when I was in the town, I talked to some of the restaurants that were near the factory and they remember when the factory opened and they noticed they had more customers and it just seemed to be a very hopeful moment for the town. And then, you know, months pass, you saw more Korean firms come in.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
So you had at least two Korean firms that were supplying washing machine parts to Samsung come in. And they then created hundreds more jobs. So there was a bit of a ripple effect on the local level.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
— He didn't have the specificity as he has today, but he was basically threatening tariffs. And if you were Samsung or any other major multinational, you would know that tariffs would have been coming. And then early on, when he, you know, became president, he started talking about industries like steel, aluminum, solar panels, and washing machines. Washing machines.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
Trump basically slapped tariffs on this industry after a complaint by Whirlpool, which is an American manufacturer. The complaint was that its competitors overseas were unfairly selling their cheap washing machines to U.S. consumers and that this was threatening U.S. industry and threatening firms like Whirlpool.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
So this is where it gets a bit tricky. And we had to turn to a economic study that came out around 2020. And the authors of that study essentially did some math to show that prices of washing machines in the U.S. went up about 12% after Trump imposed his tariffs. And that averages out to about $86 per washer. I mean, that's what economists say tariffs do, ultimately, raise prices. Right.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
And the rationale for that is that the firms importing the tariffs might be the ones to bear the burden initially, but they're going to do the math and say, well, we can't really stomach all the cost. We need to pass on some of this cost to the consumer. And, you know, that's how these tariffs ultimately filter through an economy and hit American families.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
Are there other Newberries? The Newbery example is just a very rare example where we can say that tariffs did help create jobs. It's, you know, very difficult to find other examples like this. I mean, if you look hard enough, you may be able to find instances where a certain company decided that it didn't want to pay tariffs, and so therefore it made sense to create jobs in America.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
But the examples are few and far between. What do you think is the lesson from Newbery? I think the lesson is that the impact of tariffs is very complicated and whether they help or hurt is sort of in the eye of the beholder. You know, as we can see with these washing machine tariffs, there was a different impact for businesses, for the local economy, for the industry, for the nation.
The Journal.
The Tariff Trade Off: Jobs vs. Higher Prices
And so, you know, like that's why tariffs, I think, are so controversial. I mean, they just ripple out in all sorts of unpredictable ways.
WSJ What’s News
Goods From Canada, Mexico Still Exposed to U.S. Tariffs, Despite Pause
What we're going to see in the next month or so is businesses scrambling to figure out, well, should they file the paperwork? Should they not? What is the cost around filing the paperwork versus maybe just waiting for another month and seeing if Trump's policy changes again?
WSJ What’s News
Goods From Canada, Mexico Still Exposed to U.S. Tariffs, Despite Pause
We've got a really long list of goods. It could be Mexican TVs, air conditioners, avocados, tomatoes. But for some products, it's going to be more complicated. So for example, if you take a car, You're going to have to look at what components and parts go into that car. Is the majority of that car made out of steel that is originating from North America?
WSJ What’s News
Goods From Canada, Mexico Still Exposed to U.S. Tariffs, Despite Pause
What percentage of the car's value comes from factories where workers earn at least $16 an hour? So the rules can get quite complicated quickly.
WSJ What’s News
Goods From Canada, Mexico Still Exposed to U.S. Tariffs, Despite Pause
Last year, analysts calculated that roughly 45% of goods entering the U.S. from Canada and Mexico entered under USMCA. That is, they entered duty-free because they fulfilled the requirements of the USMCA rules. And then outside of that, you had 40% of goods that were coming in tariff-free simply because businesses didn't need to claim USMCA on those products.
WSJ What’s News
Goods From Canada, Mexico Still Exposed to U.S. Tariffs, Despite Pause
And then the remaining 15% faced tariffs for various reasons, either because the businesses didn't bother to claim for USMCA because they felt the process would be too complicated, or that the tariff rate for those products was extremely low, and so therefore businesses just decided to pay those tariffs.
WSJ What’s News
Goods From Canada, Mexico Still Exposed to U.S. Tariffs, Despite Pause
So when a company tries to apply for USMCA, all they have to do is file the paperwork with authorities and check a box that says their product is compliant. Of course, then the authorities can come back and actually do a check. And if the product isn't compliant, the firm could face fees.
WSJ What’s News
Goods From Canada, Mexico Still Exposed to U.S. Tariffs, Despite Pause
So essentially what we're going to see in the next month or so is businesses scrambling to figure out, well, should they file the paperwork? Should they not? What is the cost around filing the paperwork versus maybe just waiting for another month and seeing if Trump's policy changes again?
WSJ What’s News
Goods From Canada, Mexico Still Exposed to U.S. Tariffs, Despite Pause
It's the U.S. Customs and Border Protection officials that will be implementing Trump's rules. So they're going to have to be really reconfiguring a lot of things, including their electronic databases to properly charge tariffs on products. It's really complicated.
WSJ What’s News
Goods From Canada, Mexico Still Exposed to U.S. Tariffs, Despite Pause
And they could face a lot of legal challenges and headaches from businesses if they don't agree with what's being tariffed and what's not.