Inconsistent consequences

The United States has recently imposed tariffs on Canadian lumber, Korean washing machines and Chinese solar panel components. The President is itching to slap import duties on steel. All those tax increases offset the income-tax cut, while enriching crony capitalists, fomenting a net reduction in American employment, and curtailing consumer choice.

How do these increased taxes balance out with the recent income-tax reduction?

The income tax cut will give 25 million taxpayers in the middle income quintile (or those with incomes from $49,000 to $86,000) an average of $930 of their own money back, BT (Before Tariffs). That’s about $25 billion.

I pick that quintile because I need a number, calculating the net-net of tax increase/decrease is very complicated, and the absolute dollar amount of all income-tax reduction is (naturally) skewed toward the top quintile.

Washing machines
The effect of a $50 increase is more economically significant than for lower or higher quintiles. The lowest quintile can’t afford a washing machine in the first place, and pays no income tax. Using the second lowest quintile could open my argument to charges of cherry picking. For higher quintiles $50-$100 in disposable income is irrelevant. For the discussion, I take the middle quintile as the exemplar of consumer sensitivity to the effect of increased tariffs.

In any case, what’s the amount of the offsetting tax increases? Well, washing machines, on average, will each cost $50 to $90 more. Ten million are bought every year. Consumers will pay at least an additional half billion dollars annually; not counting the as yet unknown additional consumer cost of the threatened steel tariffs.

I’ll call the mid-quintile share of that 50%, or $250 million.

Solar panels
Costs for residential solar panel installation will increase by an average of $650.

In 2017 there were only about 2,500 residential installations, so the residential cost increase would total a bit more than $1,500,000. Peanuts. It won’t make much difference for the mid-quintile.

Note, though, that commercial/utility scale installations would have a much higher value, and do have an effect.

This is because of the inherent contradiction of Fed solar panel policies. The Feds give a 30% tax credit for installing solar, while raising the price through tariffs. Taxpayers in all quintiles are subsidizing all solar projects, so there’s a tax of 6.5% (the tariff’s contribution to increased gross install costs) times the 30% subsidy on taxpayers in all quintiles. Taking $210 million as the revenue of the solar power industry in 2017, that would be about $40 million (6.5% x 30% x $210,000,000). This is a rough approximation, because I don’t know the breakdown of that revenue. What it does show is that the solar industry is not very big, and the clout to have a tariff imposed can’t come from its industrial importance. Must be “climate change” hype.

Of that total, let’s call the mid-quintile cost 15%, or $600 thousand.

New housing
The lumber tariffs added about $1,000 to the cost of a new house, pricing some 300,000 families out of the housing market. An estimated 1,202,100 housing units were started in 2017. That’s over a billion dollars, a disproportionate amount of which falls on the mid-level quintiles.

If one-third of that total falls on the mid-quintile, it’s a third of a billion.

Total cost
Now the total is approaching $600 million. Not much compared to the income tax decrease. But the real burden falls on the consumers who actually pay the extra $50 on their washing machine, the extra $650 on their solar installation, and the extra $1,000 on their house. They didn’t get a tax cut. They had their wealth redistributed to corporatists.

But, it’s more than just the increase in consumer costs: It’s also loss of jobs in retail, because fewer washing machines will be sold; the job reduction in construction of new houses; and the requirement for fewer installers of solar panels.

When steel tariffs are finalized, the job destruction in steel-using industries will be additive to washing machine manufacturing and solar panel installation. It will also affect car makers, pipeline building, skyscraper construction, tractor manufacture, ship building, etc.. Consumers will pay this tax, too.

There’s no doubt tariffs on steel will cost jobs in steel-using industries. It’s happened many times before. If Trump’s tariff accomplishments are anything like George Bush’s, we will see a cost to American consumers of $400,000 per “saved” steel job and the loss of more jobs in steel-using industries than all employment in steel manufacturing: The Perils of Protectionism

All these effects have been known since at least Adam Smith, and are documented by analysis of US tariff experimentation back to at least 1984.