Let's reconsider tariffs.
The ideas expressed here may rile some of my fellow conservatives, who believe in free trade. Free trade across our national borders offers the advantage of the lowest possible prices to the consumer for any goods. Americans love low prices. But, fewer and fewer products are made in the United States.
And, we have high unemployment here. Many industries that used to exist have fled America. We no longer make most of our own clothes or shoes, iPads, iPods, televisions, and computers. We fly in airliners built in Brazil (Embraer) and Belgium (Airbus). All those industries have taken almost all the associated US jobs overseas. We drive autos with American names that were actually built in Mexico.
Why did the industries leave? It’s simple: labor costs. A US worker is paid an average hourly rate of $23.32. The US employer also pays an average of $8.52 in benefits, for a total of $31.84. A Chinese worker is paid an incredibly low average of $1.36, but works about 12 hours per day and lives in an economy that is at least 50% less expensive. These figures come from The Huffington Post. The amount a Chinese worker receives in benefits is unknown, but whatever it is, the cost difference per worker hour is enormous.
Let’s price a hypothetical example: a pair of shoes made in the US, against identical shoes made in Taiwan, which pays an average wage of $8.68, according to another source: US Bureau of Labor Statistics. Let’s say the leather and other raw materials for our shoe is the same for both countries (they buy leather from Argentina.)
Let’s set the number of hours required to make the shoes at 3. Each manufacturer needs a 30% gross profit, and let’s make a wild stab at the cost of moving the shoes into an American store.Manufacturing cost: Taiwan, US dollars. United States Materials 20.00 20.00 Labor (times 3 hours) 26.04 95.52 Profit 30% 13.81 34.65 Transport to market 10.00 5.00 Total cost 69.85 155.17
Wow, some difference. It’s no wonder we don’t make many shoes in the US any more, this kind of thing applies to many products. Tariffs can make it a much more level playing field.
Let’s apply a tariff of 90% of the difference in labor cost and 90% of the difference in profit:Manufacturing cost: Taiwan, US dollars. United States Materials 20.00 20.00 Labor (times 3 hours) 26.04 95.52 Tariff, labor diff. 62.53 Profit 30% 13.81 34.65 Tariff, profit diff. 18.76 Transport to market 10.00 5.00 Total cost 151.14 150.17
The tariffs, high as they are, are revenue to the US government. The public pays a bit more than twice as much for the shoes, but with them US firms are competitive and can take advantage of higher productivity per worker and lower transportation costs to beat out foreign countries, unless those countries build plants in the US and hire American workers.
Suppose that US workers (more productive) need only 2 hours to build a pair of shoes, rather than 3 for the Taiwanese worker. Then the tariffs could come down:Manufacturing cost: Taiwan, US dollars. United States Materials 20.00 20.00 Labor (times 3 hours) 26.04 63.68 (times 2 hours) Tariff, labor diff. 33.88 Profit 30% 13.81 25.10 Tariff, profit diff. 10.16 Transport to market 10.00 5.00 Total cost 113.89 110.78
Prices come down accordingly.
I know that applying tariffs according to these principles, even to American brands actually made in foreign countries, would result in higher prices to the consumer (the tariff is passed on to the consumer), but our economy would begin to nurture American jobs and industries that are now almost extinct.
China, as an example, would no longer have a monopoly on the product, if American firms could make profit by producing it. Competition would pull down the price somewhat.
American firms currently have the toughest row to hoe imaginable. Don’t forget, our companies pay the highest corporate tax rate in the world. I believe that protective tariffs to equalize wage differences would level the playing field and bring our economy back, as American firms would take up manufacturing again. They would hire lots of people. I know, there are arguments against tariffs, but there are many ways to apply them and I think we should take a serious look at the importation of manufactured goods.