The US presidential contenders seem to agree on one thing: Both Donald Trump and Joe Biden have imposed high tariffs on imported goods made in China and other countries. These kinds of protectionist policies are a departure from the policies of the previous half century that favored “free trade” (less or minimal government intervention in the functioning of international markets).
What we need to see is that the shift to protectionism by the political elite did not come from their concern for the interests of workers but from the new geopolitical reality. The loss of American hegemony in the field of international trade creates new winners and losers, and the latter desire a “nationalization” of economic policy through trade tariffs and trade wars to protect their profits.
Moreover, the return of jobs that they use as a vehicle to enforce protectionist policies is not as valid as they make it out to be, and has simply changed the structure of the interests that control communication and politics in the West.
The East, or otherwise the Global South, can only benefit from the seamless conduct of international trade on a multilateral basis.
Free trade policies facilitated “globalization,” as the post-1970 surge in American corporate investment abroad was described:
- production and distribution,
- relocation of activities and
- merger with foreign companies.
US presidents before Trump had insisted that free trade and globalization served US interests best. Both Democratic and Republican administrations had enthusiastically supported this principle. The dominant ideology said that the benefits of globalization for American companies would “spill over” to the rest of society. Globalizing US corporations have used some of their profits to reward both major US parties with donations and other electoral and lobbying assistance. The last two presidents have reversed this position.
Economic nationalism
Against free trade, Trump and Biden favored multiple government interventions in international trade, notably enforcement where none existed and raising existing tariffs.
Instead of supporting free trade and globalization, they promoted economic nationalism. Like their predecessors, Trump and Biden depended on financial support from corporate America as well as votes from the working class.
Many US companies, even those that became rich, had changed their earnings expectations in response to the competition they faced from new, powerful companies outside the US.
The latter was manifested during the expansion of free trade/globalization after 1970, with China as a prominent case. American companies demanded (less or more) protection from these competitors.
They therefore financed the gradual shifts of “public opinion” towards economic nationalism. Trump and Biden thus adopted policies in favor of tariffs that protected the profits of many companies – and not the incomes of workers. These policies also appealed to those for whom economic nationalism offered new ideological opportunities.
For example, many in the US perceived the relative decline in the power of the US and its G7 allies in the global economy and the relative rise of China and its BRICS allies. They welcomed an aggressive response to this development in the form of tariff and trade wars.
Both corporations (including the mass media) and their political underlings worked to build popular and voter support. This was needed to pass the taxation, subsidies, tariffs and other laws that would implement the shift to economic nationalism.
A key argument was that “tariffs protect jobs.” A political confrontation began between the defenders of “free trade” and those who demanded “protection”.
The turn and the bombshells
These days, most candidates and parties are performing this specific ideological task for capitalism: convincing Americans that tariffs protect jobs.
Note, however, that 50 years prior to 2015 or so, the same parties and their candidates were mostly performing the opposite ideological task. They then denounced the tariffs as unnecessary, ineffective and counterproductive government interventions.
“Free international markets,” they insisted, would be far better for workers and capitalists. However, we need not and should not have been fooled then or now. Neither ideological claim is true. Free trade wins some industries, but not others.
Those who make a profit rely on exporting their products to foreign markets, invest there, or rely on importing products from there. Likewise, tariffs benefit some industries (those they protect) but not others. As industries evolve and change, so do I their relations with international trade. Accordingly, their attitude towards free trade and towards tariffs is changing.
The weapons of enforcement in the political order
Capitalist economies almost always pit free trade against pro-tariff industries. Their fights vary from open, public and intense to quiet and under the table.
Their weapons include bribes, donations and other deals offered to politicians mainly by employers in the industries concerned. Both sides also compete to attract the support of the public and especially voters — “public opinion” — in order to enforce policies.
Employers on each side are spending millions to persuade the working class to support their side. Politicians are usually divided by which side offers more donations, threatens to mount a strong opposition in the next election, or has spent more to shape public opinion. Each side seeks to prevail, to make government policies favor free versus tariff-protected trade.
One way to achieve this is the endless propaganda by politicians, business leaders, journalists and academics to one side’s perspective in the hope and expectation that it will become ‘common sense’. Each side’s arguments are driven by the economic self-interest of their respective industries rather than any shared commitment to the “truth” about tariffs versus free trade.
As we show below, the truth is precisely that neither tariffs nor their opposite, free trade, necessarily protect jobs. At best, both protect some jobs at the cost of losing others.
The truth is that we cannot know—and therefore cannot measure—all the effects on profits or jobs caused by either free trade or protectionism. Therefore, politicians cannot know what the net effect on jobs will be of either free or protected trade policies of governments.
The automotive industry and Chinese electric cars
A simple example can clarify the main points. Chinese automakers currently sell high-end electric vehicles (EVs), cars and trucks, globally at very competitive prices. These EVs can be found on roads around the world, but not in the US.
This is because, until recently, a 27.5% tariff was applied to the US. For example, if the entry price of a Chinese EV was, say, $30,000 it would cost a US buyer $30,000 + 27.5% duty (plus $8,250) for a total US price of $38,250. Recently, President Biden increased this tariff from 27.5% to 100%, thereby raising the price of the Chinese electric car for potential US buyers to $60,000.
The EU similarly plans to raise its tariffs on Chinese electric vehicles from 10% to 48%, raising the price to potential EU buyers to $44,400.
These tariffs protect electric vehicle manufacturers within the US and EU precisely because these electric vehicle manufacturers do not have to add any tariffs to the prices they charge. So, for example, if EVs made in the US and EU cost $40,000, they would be uncompetitive with Chinese EVs priced at $30,000.
The profit prospects for them would be inauspicious. With the tariffs now imposed by the US and proposed by the EU, electric vehicle manufacturers are seeing their profits. EU manufacturers can raise the price of an EV from $40,000 to, say, $43,000, and still be cheaper than Chinese EV imports which are suffering from the planned EU tariffs and thus priced at $44,400 dollar..
US EV makers can raise their prices to, say, $50,000, sharply improving their profits, while still outselling Chinese EVs priced at $60,000 (including 100% duty).
Excluding the influence of other factors (possible automation, changing preferences for cars, etc.), we can assume that the increased tariffs increased the profits of EV manufacturers within the US and the EU. We can also assume that the tariffs in question they also saved jobs at these US electric vehicle manufacturers.
But that is never the end of the story. EV jobs aren’t the only jobs affected by increased tariffs on electric vehicles. For example, many companies in the United States are buying fleets of electric vehicles. Many compete with companies outside the United States that similarly purchase such fleets as their inputs.
The increased US tariffs are hitting companies that buy electric vehicle fleets within the US hard. Companies inside the US cannot buy Chinese electric vehicles for $30,000 each. They have to pay much more for EVs made in the US that are protected by tariffs.
In stark contrast, their non-US competitors can buy Chinese EVs for the much cheaper price of $30,000. Therefore, foreign competitors can offer lower prices for whatever products they sell because they enjoy lower (because there are no tariffs) input costs.
These companies will gain buyers for their products around the world at the expense of their competitors within the US. Jobs will likely be lost at such competitively disadvantaged firms within the United States.
While the increase in tariffs on Chinese electric vehicles may have protected American workers at domestic electric vehicle manufacturers, it also deprived other US workers of jobs in other US industries that are competitively disadvantaged by the tariff burdens.
Intensity of inflationary pressures
In the examples above, electric vehicle manufacturers in the US and EU can and likely will raise their prices due to tariff protection. In this way, tariffs tend to exacerbate inflation.
- Increased prices in turn tend to hurt exports.
- Reduced exports usually mean reduced jobs.
- Even more factors shape the effects of tariffs on labor.
- Potential retaliation from other affected countries is often “forgotten”.
- Figures already show retaliatory Chinese tariffs on imports of US heavy-engine vehicles.
- If that happens, American exports to China will shrink or end.
- The jobs these exports entail will also end, offsetting the job gains from the tariffs imposed on Chinese EVs.
- Since China is the main target of US and EU tariff policies, it is important to see how China might respond in ways that threaten major US and EU job losses.
- China has now successfully surrounded itself with allies in the BRICS (11 countries in total).
Export redirection
The imposition of tariffs incentivizes China to offset most or all of this loss by shifting its production to the world outside the United States and the EU, and particularly to its BRICS partners.
As China redirects its exports, this will also affect where its imports come from. All of these changes will affect many US and EU industries and the jobs they sustain.
Frank and honest economists shrug and cite high uncertainty when asked whether tariffs will “protect” jobs. No matter how hard or bribed to give a definitive answer, honesty rules it out.
But politicians looking to get votes by promising that a tariff they impose will protect jobs can rest easy. They will easily find economists who will give or sell them the answers they want to hear.
The implications of this analysis for the US working class are significant. The struggle between free traders and protectionists pits the shifting alliances of capitalist employers against each other. An alliance of capitalist employers is fighting another to win the votes of the working class.
Each side is pushing its false narrative about which is the best policy for jobs. The working class must not be fooled or distracted by these free trade struggles against protectionism among the capitalists.
Whoever wins them remains primarily profit driven. The ultimate impact on jobs is not a priority for either of them. It never was. Therefore, it is in the interest of the workers to form a multilateral international order where the balance of power will make it possible to enforce fair rules in international trade and respect for economic sovereignty
