Tech Lecturer: Tariffs Could Work But Recent Results Poor

While the idea of American tariffs may work in theory, the United States has had an overall negative experience using tariffs in recent years.

Tennessee Tech Economics Lecturer Chelsea Dowell said several economic theories suggest tariffs can protect some domestic jobs and bring others back stateside, but results vary greatly with different industries. Dowell said a study on the most recent round of American tariffs showed no evidence of any industrial rebounds, only price hikes.

“If we’re looking specifically at, say, manufacturing, which is a lot of what the discussion has been lately, our evidence says probably not,” Dowell said. “We’re not seeing evidence that manufacturing is coming back, but theoretically we have models and theories that say it could.”

Dowell said placing tariffs on foreign goods can make domestic prices appear cheaper even though consumers are now purchasing the domestic products that were originally more expensive. Dowell said tariffs can serve as a way to raise tax revenue or get leverage over other countries by threatening to impose tariffs if the countries do not comply.

“For example, President Trump came in and said ‘I’m going to impose twenty-five percent tariffs on Canada and Mexico,'” Dowell said. “And that threat, it was a credible threat because he had imposed tariffs in the past, so Canada and Mexico, their governments came together and said, ‘Okay, we’re willing to sit down and talk with you and see if we can come to an agreement so we don’t ever have to actually impose these tariffs.'”

Dowell said implementing tariffs on other countries can cause a trade war where the affected countries place their own tariffs on American goods in retaliation. Dowell said these trade wars run the risk of increasing prices for everyone involved as all consumers either have to help pay for the tariff or turn to domestic suppliers.

“Sometimes, yes, we see prices rising, sometimes not by the full amount if the producer’s taking on some of that price hike themselves,” Dowell said. “And sometimes it’s just the threat of the price rise that’s enough and we don’t actually see it having a follow through.”