Tariffs do enable protected industries to expand—if they can cope with the risk that their investments are reliant on executive orders and can be overturned by the next president. Without tariffs, the additional output of protected industries would be unprofitable, and the resources redirected to those industries could have generated more value left in their original, more productive uses. By inducing the production of goods at home that could be bought more cheaply abroad, tariffs misallocate resources and lower productivity and growth. If tariffs on textiles raise prices at Walmart enough to bring textile mills back to the Carolinas, does diverting capital from artificial intelligence to build these mills make America richer or poorer?
When Mr. Trump isn’t trying to shame American retailers and producers into eating tariff costs, he claims that these costs will be absorbed by foreign exporters. But the import price index has remained virtually unchanged since the implementation of the tariffs, providing evidence that foreign producers aren’t absorbing the costs of the tariffs by cutting prices. Goldman Sachs found that through June American businesses appear to have absorbed 64% of the cost of tariffs so far.
To the degree that domestic retailers and producers continue to absorb tariff costs, their earnings will fall. Roughly 72% of the value of publicly traded U.S. companies is owned by pensions, 401(k)s and other retirement accounts, charitable foundations and insurance companies backing life insurance and annuity products. When producers and retailers eat the costs of the tariffs, Americans end up paying those costs through reductions in their investment and retirement incomes.
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