Tariffs

Posted by PITHOCRATES - September 9th, 2013

Economics 101

The Proponents of Tariffs say they will Protect Infant Industries and Domestic Jobs

Tariffs.  What are they?  And what are they for?  A tariff is a tax.  Or a duty.  The government applies tariffs to imported goods.  Making them more expensive.  So people have to spend more money for them.  Leaving them less money to spend on other things.  Which seems counterintuitive to trying to increase economic activity.  Increasing prices the consumers pay, leaving them less money to buy other stuff.  So why do they do it?

The argument for tariffs is typically to protect ‘infant’ industries.  To give them a chance to get off the ground and establish themselves.  So they can later compete with this more developed and less costly foreign competition.  Which they couldn’t do if those foreign competitors can sell goods just as good if not better at lower prices.

Another argument is that tariffs protect domestic jobs.  A lot of imported goods are less costly than the same domestically produced goods.  Because of less costly labor in these other countries.  Often developing economies.  Unlike the developed economies who pay their people more.  And give them more benefits.  All paid for with the higher prices the people pay for their goods.  Tariffs raise the prices of foreign goods so they are not less costly than the domestically produced goods.  To get people to buy domestic goods.  Thereby saving domestic jobs.

Americans have to Pay about $1.25 more for a Bag of Sugar than the Rest of the World

These arguments make tariffs sound noble and good.  For they’re helping the little guy.  And protecting middle class jobs from cheap labor in foreign countries.  But they also hurt the little guy.  And poor families.  Because tariffs raise the price of the things they have to buy.  For example, tariffs on sugar imports raise the price Americans pay for sugar higher than people can buy sugar outside of the United States.  So the sugar they buy, and anything that contains sugar as an ingredient that they buy, is higher than it would be if the sugar tariffs weren’t there.

The US population in 2012 was 313,914,040.  Let’s assume the adult population is approximately 250 million.  And that half of them buy sugar.  How many sugar producers are there in the United States?  Far, far fewer than 125 million.  The Washington Post noted in 2007 that there were only about 6,000 sugar farmers.  About 0.002% of the population.  While the sugar buyers are closer to 40% of the population.  Or more if you include the things we buy that have sugar in them.  The numbers are approximate but the point is clear.  The people helped by tariffs are an infinitesimally small number while the people hurt by tariffs are a much, much larger number.

Let’s crunch some numbers.  While people outside of the United States can buy a bag a sugar for $1 Americans have to pay $2.25.  Or $1.25 more.  To protect American jobs in the sugar industry.  The 6,000 sugar farmers.  Let’s triple this number for the corn farmers (for high fructose corn syrup) and the sugar companies.  Rounding it out to an even 20,000 jobs that sugar tariffs protect.  If half of all adults buy a bag of sugar that’s $156 million pulled out of the economy that goes to, for lack of a better term, Big Sugar.  Let’s say these adults buy two bags a year.  Bringing the transfer from the 125 million (sugar consumers) to the 20,000 (Big Sugar) to $312.5 million.  Let’s double that number to include everything we buy that includes sugar as an ingredient.  And then double that number to account for all the sugar and corn subsidies.  Bringing the total annual wealth transfer from consumers to Big Sugar to approximately $1.25 billion.

Tariffs transfer Wealth from the Many to the Few and Reduce Economic Activity

That’s an enormous amount of wealth transferred from less rich people to richer people.  From consumers to Big Sugar.  But is it accurate?  Well, according to an article published in the Washington Post, yes.  The article states:

The Government Accountability Office has estimated that the sugar program costs consumers and food processors between $1 billion and $2 billion annually in higher prices for sugar and a vast array of products that contain it. Meanwhile, the new sugar subsidy would cost taxpayers tens of millions of dollars a year, according to economists and U.S. officials.

So our crude calculation may be on the light side.  This is a lot of money taken out of the pockets of hundreds of millions of consumers to protect 20,000 or so well-paying jobs.  Nearly half of the US population supporting less than 0.02% of the population.  And those tariffs paid that 0.02% very well.  Because Big Sugar is very profitable.  And can pay their people very well.  As they have tariffs to increase their selling prices and subsidies to lower their costs.  Which greatly fattens the bottom line.

In the United States the price of sugar is so high that businesses have turned to high fructose corn syrup for their sweetener.  Which our tax dollars also subsidize.  Making it a very profitable industry.  And as an added bonus for Big Sugar, some studies have indicated that high fructose corn syrup doesn’t satiate your appetite like regular sugar.  Causing us to overeat.  Which lets the soda pop industry sell more soda pop.  The (sweetened) food industry sell more food.  And, of course, Big Sugar sell more sweetener.  Making them richer.  And the people poorer.  As well as obese.  All of this to protect a very few jobs in some very old industries.  Transferring wealth from the many to the few.  And reducing economic activity.  Pretty much the exact opposite of what the proponents of tariffs say tariffs will do.  But what they in fact do.  Help the few.  At the expense of the many.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , ,