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How tariffs — like those on Chinese goods — might impact inflation and jobs


This week, President Biden announced new tariffs for imports on $18 billion worth of Chinese goods, including a range of things like lithium batteries and medical masks. Electric vehicles from China are also on that list. That tariff would be especially steep, quadrupling to 100%. Darian Woods from NPR's The Indicator is here with us to explain how all of this could affect inflation and jobs. Hi there.



SUMMERS: So tariffs are a tax on imports. If this tax is passed on to consumers, that could mean higher prices. Is this move going to raise inflation?

WOODS: Right now, the answer is no. That $18 billion only represents about 4% of current imports from China, so it's a small amount in the scheme of things. That said, this move could still mean a more expensive future. So take electric vehicles. China is essentially not selling electric vehicles in the U.S. right now. But without these tariffs, they could have. Chinese-made electric vehicles are selling for very cheap domestically in China. You can buy one there for $4,000.

Mary Lovely is an economist at the Peterson Institute for International Economics, and she worries that shielding U.S. manufacturers from competition could mean prices here don't fall as fast as they could.

MARY LOVELY: It's going to prevent competition from what many see as the most innovative country when it comes to EVs. That is China. So we're not going to benefit from Chinese innovation.

SUMMERS: But clearly, prices are not the main goal here for the Biden administration. President Biden's talked about supporting U.S. manufacturing jobs. So what's the likely effect there?

WOODS: It's hard to know exactly what the future might hold with such a new industry as electric vehicles. But we can look to the tariffs imposed under the Donald Trump administration in 2018 and '19. Those covered imports like washing machines, steel, car tires. I spoke to an economist, Gordon Hanson. He and his co-authors published a paper on this in the National Bureau of Economic Research.

GORDON HANSON: We actually found no impact on employment in the U.S. manufacturing regions that were producing goods that should have benefited from that trade protection.

SUMMERS: So no impact on jobs then.

WOODS: No jobs created. But there were job losses, though, where China's retaliatory tariffs hurt. These were particularly hard on the agricultural industry - places like soybean farms.

SUMMERS: Huh. OK, so what does the research say about just preserving American jobs with tariffs? Does that work?

WOODS: Research shows that protecting any jobs was expensive. And other economists studied the estimated cost of the Trump tariffs, and they cost as much as $900,000 per job per year for every worker protected.

SUMMERS: Hmm. So the policy of tariffs seems to be costly. Economists who study it generally don't seem to be fans. So now that both major political parties are doing it, why have tariffs risen in popularity?

WOODS: It plays very well politically. And Gordon Hanson's research in the NBER measured the impact of this on voters.

HANSON: Donald Trump seemed to benefit. He got a boost that was modest. We estimate it at 0.7 percentage points. In a closely contested election, every little bit helps.

WOODS: So Hanson thinks we're witnessing a big shift in how the U.S. views international trade. So for about three decades, the U.S. was unified in removing barriers to trade and embracing globalization. But now, Hanson says we're in a new regime. And given China could retaliate with tariffs against U.S. companies like Tesla...


WOODS: ...This trade war 2.0 might have only begun.

SUMMERS: Darian Woods from The Indicator From Planet Money. Thank you.

WOODS: Thanks.

(SOUNDBITE OF GIANTS' NEST'S "SURF THE ORANGE WATER") Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Darian Woods is a reporter and producer for The Indicator from Planet Money. He blends economics, journalism, and an ear for audio to tell stories that explain the global economy. He's reported on the time the world got together and solved a climate crisis, vaccine intellectual property explained through cake baking, and how Kit Kat bars reveal hidden economic forces.