The Chicken War: A Tariff Tale
In the stormy arena of worldwide commerce, tariffs have become a red-hot topic, bringing back into discussion the heated debates of the post-World War II period. The so-called “chicken war” between the United States and Europe offers a clear historical perspective from which to view the current complexities of trade policy. Consumers as well as trade policy wonks need to pay attention to these discussions. They bear the real economic consequences when the fat is really hit. And understandings of tariffs’ impacts on domestic and global economies couldn’t be more necessary right now.
This article contends that while tariffs might seem to provide immediate advantages for certain industries, they actually cause widespread economic damage, increase consumer prices, and suppress international collaboration. We will shed light on the historical context of tariffs, the current state of affairs, and the likely fallout from the new tariffs that have been proposed. By doing so, we will make clear why this reappraisal of tariffs in today’s world is necessary.
Impact of Tariffs on Domestic Markets
Tariffs aren’t just something for wonks to discuss; they have real effects on the lives of Americans. The set of tariffs that former President Donald Trump put in place in 2018 on washing machines and steel, for example, worked out to significant price increases for consumers. One study found that these tariffs, at the end of the day, had created about 1,800 jobs, but those jobs came at the cost of $1.5 billion a year. Per job, that’s a little more than $815,000. Is this an effective policy? Does it even make economic sense?
Field experts—like economist Gary Hufbauer—have commented, “Tariffs are a blunt instrument that can cause more harm than good. They often protect a few at the expense of many.” Their societal implications are nothing to scoff at. When protected producers can raise prices, the real standard of living for unconvinced consumers falls. When the purchasing power of the average consumer diminishes, the economic growth of that society stops being vibrant and starts being sclerotic.
Trump’s Tariff Proposals and Economic Consequences
The complexities of tariff imposition come to the fore in the chicken war of the 1960s. American chicken, you see, was a big deal in post-war West Germany. It was, in the lingo of the trade, a real success story. But success—especially when it comes to chicken—tends to ruffle feathers. Local farmers in West Germany got very upset about the surge in chicken exports from the U.S., which they felt was undermining their livelihood. So what did the European Union do in response to the upset of the farmers? It slapped tariffs on U.S. chicken.
Now, let’s leap ahead to 2018. Trump’s administration puts forward a manufacturing protection plan. This plan establishes tariffs, mainly on imported steel and aluminum, aimed at “propping up” domestic manufacturing in those two sectors. Secretary of Commerce Wilbur Ross, who at one time was a significant investor in steel, made a big deal out of the cover story for these tariffs: They were designed to punish China for a whole mess of trade violations and also to improve our national security.
Market forces operate best when they are allowed to operate freely. Tariffs interfere with this operation and lead to inefficiencies. They are a poor substitute for good policy, providing what at most is temporary relief and benefiting only domestic producers. Beyond that, they push up consumer prices. The recent washing machine tariffs illustrate the point. When the cost of imported washers went up, domestic manufacturers, facing greater demand, raised their prices for washers and also pushed up their prices for the dryers that go with the washers.
The story that tariffs lead to job creation is somewhat of a fable. True, Trump’s tariffs did cause some sectors to add workers, but by no means did these “gains” outweigh the job losses in “downstream” industries—almost twice as many jobs were lost in these sectors as were gained in the protected ones. Why does this matter? Because, in sum, tariffs are taxes; and taxes on trade cause all of us to pay more.
The Future of Tariffs in U.S. Trade Policy
Implementing tariffs frequently invokes retaliatory steps from the countries they affect, causing what may be seen as a natural escalatory trade war. Our history with the chicken war shows how quickly countries can sour on each other and how much international trade can take it on the chin.
People often neglect to consider the long-term economic effects of tariffs. Once put in place, they can become so entrenched that people seem to forget why they were imposed in the first place and come to see them as necessary. The 25 percent tariff on trucks imposed during the chicken war—an ill-timed and badly executed attempt to protect American chicken producers from competition—has become a permanent part of our trade landscape, a fixture in the lives of chicken consumers and truck buyers.
For two decades, the geopolitical environment has been changing rapidly, with nations like China appearing as powerful economic forces. Employing tariffs as a negotiating tool in trade talks may be old hat, but their effectiveness is surely in question. If they were a potent solution, “you would expect Japan, Germany, and China—tariffed nations—to be in the catbird seat by now,” as economist and tariff expert Gary Clyde Hufbauer puts it. And in fact, those countries are not.
Supporters of tariffs say they shelter American industries and create American jobs. But that is not always, or even usually, the case. Higher prices are the price Americans pay for the supposedly protective effect of tariffs. Moreover, even if we could somehow get around the higher prices, the jobs that are supposedly created by the protective effect of tariffs are not always secure, and they are not always good jobs. Finally, the idea that tariffs can induce foreign nations to change their trade practices is perhaps the most dubious part of the argument.
The tariff policies’ impacts are felt deeply by everyday Americans. We pay more for the imports that are subject to tariffs, and we pay more for everything that uses those imports as inputs. Economically speaking, we are very much in the same boat with all of the other tariffed nations—e.g., China, Canada, and Germany. If the tariff policies have any overall effect seen from the viewpoint of average Americans, it is this: They decrease our real wages (the Purchasing Power Parity version of them) and our economic freedom.
To sum up, although tariffs might provide temporary succor to certain industries, they end up causing more serious and widespread economic damage. They push consumer prices higher, cause job losses in downstream industries, and can set off retaliatory measures from other countries. And what is perhaps more important, the historical context of tariffs reveals a long, sad story of inefficiency and a tendency to cause many unintended effects.
When we consider the intricacies of global trade in a world that is connected like never before, we must look closely at the part tariffs play in our economy. They can be and have been good. They can be and have been bad. Using them in the proper way and for the proper reasons—sending a signal to protect or promote what is economically right—requires a firm grasp of what is at stake for the American economy, American jobs, and American consumers.