The Wire Hanger Tariff Must Go
Here is a great example of the negative, distortionary effects tariffs can impose on an economy.
Because US wire hanger manufacturers were in danger of going out of business, the US recently imposed a tariff on Chinese-made wire hangers. This will result in US dry cleaners paying ~$4,000 on average more for hangers per year. With about 30,000 dry cleaners in the US, the cost of the tariff to all dry cleaners is approximately $120,000,000 per year. If the costs are passed through to the consumer, you and I will pay about a penny or two more per shirt.
But this will save American jobs, you say? Who cares about a penny or two? While this may be true in the short run, it is clear we are paying entirely too much to "save" these jobs. Brandon Fuller runs the numbers here. The analysis starts by conservatively assuming the tariff will save every job in the US wire hanger manufacturing industry (564 jobs). Given the $120,000,000 cost estimated above, this means we (as an economy) are paying more than $200,000 per job to keep it in the US ($120M / 564 jobs). Given the average pay at factory jobs such as these is about $30,000 per year, this is clearly not a good deal for our economy. Put another way, we'd be better off just giving these 564 employees $30,000 to do nothing than we would be imposing this tariff. I'm not suggesting we do this, but it does show how bad the tariff really is.
So how does this happen? The problem lies in how the costs and benefits are spread across the economy. Dry cleaners will make less money or more likely, they will eventually pass on the cost increase to their customers. Customers like you and me won't really care, because the increase will come in such a small amount across millions of us. On the other hand, the US hanger manufacturers reap 100% of the benefits. Because their livelihoods depend on it, and there are only 564 of them, they band together to fight the government to make sure the tariff is imposed.
This particular tariff probably isn't too big if a deal because of its relatively small size. The big problem arises when you take the scenario further and impose tariffs in other industries against other countries. As tariffs increase, eventually those pennies start to add up to a significant amount of money. Consumers eventually have less income. Less income leads to less funds available for investment. Less funds available for investment leads to a contraction of the economy. A contraction of the economy ultimately leads to fewer jobs. In the end, tariffs can only "save" jobs for so long. Eventually they cause much more harm to the economy than good.
Because US wire hanger manufacturers were in danger of going out of business, the US recently imposed a tariff on Chinese-made wire hangers. This will result in US dry cleaners paying ~$4,000 on average more for hangers per year. With about 30,000 dry cleaners in the US, the cost of the tariff to all dry cleaners is approximately $120,000,000 per year. If the costs are passed through to the consumer, you and I will pay about a penny or two more per shirt.
But this will save American jobs, you say? Who cares about a penny or two? While this may be true in the short run, it is clear we are paying entirely too much to "save" these jobs. Brandon Fuller runs the numbers here. The analysis starts by conservatively assuming the tariff will save every job in the US wire hanger manufacturing industry (564 jobs). Given the $120,000,000 cost estimated above, this means we (as an economy) are paying more than $200,000 per job to keep it in the US ($120M / 564 jobs). Given the average pay at factory jobs such as these is about $30,000 per year, this is clearly not a good deal for our economy. Put another way, we'd be better off just giving these 564 employees $30,000 to do nothing than we would be imposing this tariff. I'm not suggesting we do this, but it does show how bad the tariff really is.
So how does this happen? The problem lies in how the costs and benefits are spread across the economy. Dry cleaners will make less money or more likely, they will eventually pass on the cost increase to their customers. Customers like you and me won't really care, because the increase will come in such a small amount across millions of us. On the other hand, the US hanger manufacturers reap 100% of the benefits. Because their livelihoods depend on it, and there are only 564 of them, they band together to fight the government to make sure the tariff is imposed.
This particular tariff probably isn't too big if a deal because of its relatively small size. The big problem arises when you take the scenario further and impose tariffs in other industries against other countries. As tariffs increase, eventually those pennies start to add up to a significant amount of money. Consumers eventually have less income. Less income leads to less funds available for investment. Less funds available for investment leads to a contraction of the economy. A contraction of the economy ultimately leads to fewer jobs. In the end, tariffs can only "save" jobs for so long. Eventually they cause much more harm to the economy than good.
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