If there’s anything you can count on other than death and taxes, it’s nearly all of America’s economists and members of the political and policy elites abhorring unilateral tariffs on imports as dangerous folly. (Multilateral tariffs, applied with the approval of the World Trade Organization, are generally more popular, as they’re seen as an internationally acceptable means of enforcing global trade rules.) Which is why it’s so important for RealityChek to keep pointing out examples of these duties working like a charm to help bring valuable production and jobs to the United States.
A recent Bloomberg item showed just how effective tariffs can be. This report on a recent $120 million Chinese investment in a copper tubing factory in Alabama contained the usual boilerplate about the Chinese company wanting to avoid higher wages back home and seeking to manufacture closer to its customers. To their credit, the reporters also noted that Alabamanians needed to shell out $20 million in incentives to make sure the Chinese chose their state – a widespread practice that should remove much of the shine from this piece of the American manufacturing renaissance meme.
But they and their editors also buried a crucial inducement for China deciding to produce these goods in the United States – to avoid tariffs on copper products. Nor has this been an isolated case. Years ago, in Foreign Affairs quarterly, I described how Reagan-era tariffs and quotas resulted in major new foreign investments in American auto assembly plants and steel mills. And similar measures clearly continue driving the construction of lots of new foreign-owned facilities in the United States today. Of course, America’s trade competitors have mastered this strategy, too. Scholarly research makes clear that erecting trade barriers in order to induce “tariff jumping” investment is common in developing countries. But Europe also attracted considerable U.S. and other multinational capital in the electronics and information technology sectors with this practice.
Tariffs are especially promising for America, however, not only because of that matchless consumer market mentioned above, and the leverage it creates with foreign governments and corporations alike. They’re especially promising because this huge consumer market is so far away from most of the foreign production sites that still supply it so successfully. Making products in America is both a great way to cut transportation costs and a great way to cut delivery times.
American labor and regulatory costs of course remain on the high side. And foreign governments are rarely shy about using a wide range of subsidies – including artificially cheap currencies – to keep their own goods and services competitive. All the more reason, then, for Washington to set about meaningfully boosting the weakfish U.S. recovery by using tariffs more systematically to lure productive, job-creating foreign investment and technology. Why keep arguing with success?