Introduction

Since World War II, tariffs and other barriers to trade have fallen dramatically as the United States and its economic partners have liberalized the trade of goods and services across borders. On net, these changes have produced tremendous gains for the average citizen. One analysis estimates that between 1950 and 2016, trade liberalization and globalization more broadly has produced approximately $2.1 trillion dollars in additional gross domestic product (GDP), adjusted for inflation. Likewise, it is estimated that U.S. “GDP per capita and GDP per household . . . increased by $7,016 and $18,131” (adjusted for inflation) and that “disproportionate gains probably accrue to poorer households.” However, not all of the gains from globalization have been shared equitably.

In 2016, a now-famous paper, colloquially known as the “China Shock,” found that admitting China into the World Trade Organization in 2001 led to a flood of imports from the country, which displaced up to approximately 2 million domestic manufacturing jobs over a 10 year period.5 There was plenty of pushback on the China Shock, but the paper added intellectual fuel to the anti-globalization fire. For example, the Trump administration used the paper’s findings, in part, to justify its trade war with Beijing. Yet even the authors of the China Shock do not blame trade liberalization per se for legitimate problems; rather, they see this as a larger story about how certain labor markets in concentrated areas did not adjust as quickly or efficiently as economists believed they would. In fact, the authors are skeptical that erecting new tariffs or trade restrictions would do much to revive domestic manufacturing; in an update to their original findings, the economists note: “We are aware of no research that would justify ex-post protectionist trade measures as a means of helping workers hurt by past import competition.”

On net, though, globalization has withstood the test of time, proving itself to be overwhelmingly beneficial for society. A recent study that surveyed economists found strong consensus in favor of trade liberalization and skepticism of trade barriers.

While tariffs and trade barriers have generally fallen in the United States, persistently high tariffs on a small number of products and services exist, all of which can have detrimental social effects. For example, in 2012, the United States Department of Commerce imposed heavy anti-dumping duties on solar cells imported from China. In 2018, the United States again imposed heavy tariffs on imported solar from basically every country. In both of these instances, the U.S. government was responding to domestic complaints about import competition from foreign solar producers. These policy choices may help bolster the domestic solar manufacturing industry, but they raise prices for consumers, which in turn slows the deployment of clean energy. Intentionally increasing the price of solar products hinders efforts to aggressively confront climate change.

This is just one example of tariffs and trade policies that cause negative externalities for society–beyond the simple economics of the product in question—but there are myriad examples. This policy brief will present a case study of another example.

Press Release: Give Me Your Pleather: How Tariff Disparities Subsidize Leather Goods

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