FACT: Canada, Mexico, and China are the U.S.’ three largest trading partners

THE NUMBERS: Temperature tonight in Lewiston, Maine – -5°

* Accuweather forecast. Minus five degrees in Fahrenheit system; Celsius equivalent -20°.

WHAT THEY MEAN:

Following up on our statement on Mr. Trump’s attempt to raise tariffs on products from Canada, Mexico, and China last Saturday — a 10% tax on smartphones, laptops, and other Chinese-assembled products in place and 25% taxation of Canadian and Mexican-made stuff perhaps in a few weeks — here  are PPI’s four principles for response to tariffs and economic isolationism:

• Defend the Constitution and oppose attempts to rule by decree;
• Connect tariff policy to growth, work, prices and family budgets, and living standards;
• Stand by America’s neighbors and allies;
• Offer a positive alternative.

Regrettably, we’ll likely have a lot to say about these this year. Others, too. Here for example is Iowa Senator Charles Grassley on Monday, connecting tariffs to the daily farm economics:

“I plead w/ President Trump to exempt potash from the tariff because family farmers get most of their potash from Canada.”

Similar notes from other Republican Senators: Kevin Cramer (R-N.D.) worries about the loss of 80% of North Dakota’s export trade as, provoked beyond their normal good nature, Canadians publish retaliation lists; Susan Collins (R-Maine) thinks of Maine businesses and (noting this week’s Arctic-level Lewiston thermometer readings) fears a sudden spike in home heating bills:

“The Maine economy is integrated with Canada, our most important trading partner. Certain tariffs will impose a significant burden on many families, manufacturers, the forest products industry, small businesses, lobstermen, and agricultural producers. For example, 95 percent of the heating oil used by most Mainers to heat their homes comes from refineries in Canada.”

To put a number on this, Maine bought $2.73 billion worth of fuel oil, mostly for heating oil from Canada last year, so Mr. Trump’s midwinter 10% energy tariff would have hit the state’s 590,000 households with a new $270 million bill.

These tariff threats were only temporarily withdrawn Monday evening, though, and return in three weeks.  So before they do, some stats on their potential impact for energy, food, consumer goods, and industrial supply costs in the United States; then a thought on the options open to the Senators and Reps. making these sorts of complaints.

Crude oil: Canada supplies about 60% of America’s crude oil imports, and Mexico another 10%. Even setting aside refined products like New England’s home heating oil, the two countries together provide about 30% of the crude oil American refineries use for gasoline, jet fuel, and locally refined heating oil. The value of crude alone last year came to $107 billion, meaning a 25% tariff at face value raises the refineries’ bills by about $27 billion, with the bill coming due later on for families at gas stations and in heating bills.

Toys: China ships about 80% of U.S. toys — $12 billion in 2023 — and Mexico another 5%, suggesting higher costs for birthday parties this spring and Christmas presents further ahead.

Phones and TV sets: China likewise supplies about 80% of the smartphones sold in the U.S. (with Vietnam and India as the other two suppliers). For TV sets, the Chinese share is a more modest 50%, and the Mexican share is 10%.

Groceries: Mexico is the U.S.’ top source of winter vegetables and fruit, supplying grocery stores with about $2.5 billion worth of fresh produce each month in wintertime. Last month, we noted that in February of 2024, this came to 188,640 tons of tomatoes, 128,330 tons of peppers, 106,460 tons of avocadoes, and 44,440 tons of lemons and limes. Here are some more February 2024 purchases: 44,000 tons of fresh strawberries and 26,000 tons of raspberries, 110,000 tons of jalapenos and other chili peppers, and 97,450 tons of cucumbers. One could go on.

Auto parts: Of the $139 billion worth of auto parts American factories and repair shops bought last year from abroad, $65 billion worth came from Mexico, $16 billion from Canada, and $12 billion from China. So expect your U.S.-made car to cost more and your repair bills to rise along with the gas prices.

The toy/phone/TV tariffs may or may not stay on, and the threats to impose tariffs by decree on purchases from Canada and Mexico come back in three weeks.  What then are the Senators’ options? Their concern about rising costs for farmers and lobster boat captains, cold homes, threats to jobs, and stretched family budgets is actually linked very closely to the first principle of response — defend the Constitution and oppose attempts to rule by decree. The Constitution’s tariff clause is not at all blurry: “Congress shall have the Power to lay and collect Taxes, Duties, Imposts, and Excises.” So Republican Senators and Representatives have no need to plead for special carveouts and exemptions. They have all the power they need to keep potash and heating oil prices down, and to preserve Congress’ constitutional authority from Mr. Trump’s power grab, by voting. They just need to use it.

FURTHER READING

Trump administration “Fact Sheet” on tariffs:

… vs. Constitution, see Article 1, Section 8, assigning Congress power over “Taxes, Duties, Imposts, and Excises”.

… Canada retaliation list.

A Congressional perspective: 

A statement from the New Democrat Coalition.

And a preventive for this sort of stunt:

Reps. Suzanne DelBene (D-Wash.) and Don Beyer (D-Va.) have a bill to ban the use of the International Emergency Economic Powers Act (designed for response to the outbreaks of wars, pandemics, and so on) for creating tariff systems.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

Read the full email and sign up for the Trade Fact of the Week.

FACT: U.S. drug overdose deaths down 21.7% from 2023 to 2024. 

THE NUMBERS: CDC estimates of U.S. deaths by drug overdose –

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

Read the full email and sign up for the Trade Fact of the Week.

FACT: The world economy is growing and ‘normalizing’ in 2025. Or else not.

THE NUMBERS: World economy at the end of 2024 – 

* Anomalously low due to COVID-19 economic closures. The 2019 total was $25.0 trillion.

WHAT THEY MEAN:

Peering into the near future in its “World Economic Outlook” update last Thursday, the International Monetary Fund sees a “normalizing” 2025 for the world economy. The Fund’s mighty banks of computers, integrating figures on savings rates, energy costs, retirements, fiscal balances, investment levels, debt loads, and the like, arrive at projections of worldwide growth of 3.3%, fading inflation, and interest rates possibly trending down. Economic Counsellor Pierre-Olivier Gourinchas summarizes the “data-driven” outlook:

“We project global growth will remain steady at 3.3% this year [as against 3.2% in 2024 and 2023], broadly aligned with potential growth … inflation is declining, to 4.2% this year and 3.5% next year, which will allow further normalization of monetary policy. This will help draw to a close the global disruptions of recent years, including the pandemic and the Russian invasion of Ukraine.”

Dr. Gourinchas goes on to note some variability of growth among big economies, noting that the U.S. and China are the relatively strong-growth big economies, though both with some asterisks. China’s boom era is past: its 4.5% growth projection is now similar to the 4.2% the IMF sees for other “emerging economies” and the 4.1% for low-income countries, and well below India’s 6.5%. Benefiting from relatively high productivity growth, meanwhile, American living standards are “pulling away from those of other advanced economies”; but the U.S. has higher inflation risk than its peers for other reasons: a likely rising budget deficit, plus immigration and tariff plans seen as stagflationary.* Continental Europe, on the other hand, is slower than it should be, with 1.0% growth — a bit below the 1.6% for the U.K. and the 1.1% for Japan.

The projections suggest general calm, a prospering if not booming world, and the sort of problems that usually come up in normal times. Data cited above from other venues — trade flows, rising air and maritime logistical capacity, rapid satellites and fiber-optic cable deployment, a slowly falling rate of deep poverty — all seem to say this needn’t stop any time soon. So here’s J.M. Keynes in The Economic Consequences of the Peace (1919) to remind us of how quickly and badly things can go wrong when — despite equations, data, and rational predictions drawn from them — governments and publics make poor choices:

“What an extraordinary episode in the economic progress of man that age was, which came to an end in August, 1914! … [For] the middle and upper classes, life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend.”

“[H]e regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life.”

Back to the IMF for the last word: Dr. G. is more alert to this sort of risk than was Keynes’ wealthy and oblivious Londoner just before the First World War. His closing comment steps back from data-driven optimism to anxiety about policy and human choices:

“Finally, additional efforts should be made to strengthen and improve our multilateral institutions to help unlock a richer, more resilient, and sustainable global economy. Unilateral policies that distort competition—such as tariffs, nontariff barriers, or subsidies—rarely improve domestic prospects durably. They are unlikely to ameliorate external imbalances and may instead hurt trading partners, spur retaliation, and leave every country worse off.”

* Direct quote on mass deportations and tariff increases: “Will play out like negative supply shocks, reducing output and adding to inflation.”

FURTHER READING

The IMF’s Gourinchas on the year ahead.

… and the full “World Economic Outlook” update.

Keynes’ Economic Consequences of the Peace (1919).

And the Biden administration’s last word on the economy.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

Read the full email and sign up for the Trade Fact of the Week.

FACT: The last big U.S. tariff increase: Herbert Hoover’s, in June 1930.

THE NUMBERS: U.S. tariff rates* –

*Trade-weighted” averages, dividing tariff revenue by goods import value.  U.S. International Trade Commission, at https://www.usitc.gov/documents/dataweb/ave_table_1891_2023.pdf.

WHAT THEY MEAN:

The incoming administration has — it says — a plan for the first big U.S. tariff increase since Herbert Hoover’s in 1930.  But as PPI’s Ed Gresser observes in Tariffs and Economic Isolationism: Four Principles for a Response today (borrowing some post-Hoover lyrics) even at this late date, a week before the inauguration, whatever this plan might be ain’t exactly clear.  With a detailed response still premature, his piece offers four principles as a foundation:

1. Defend the Constitution.
2. Connect tariffs and trade policy to American family living standards, growth, and work.
3. Stand by America’s neighbors and allies.
4. Offer a positive alternative.

Some background first, then a bit more on each:

Trump campaign documents, and more recent transition statements, float at least five tariff plans, mostly incompatible: (i) a higher overall tariff, of 10% or possibly 20%, probably stacked on top of the current 2.4%, imposed by decree after a declaration of “emergency”; (ii) threats to impose tariffs on particular countries over unrelated policy issues, also presumably by decree; (iii) a new “Rube Goldberg” tariff schedule in which every U.S. HTS-8 line is equal to or higher than the precisely comparable line in every other customs territory; (iv) a Congressional bill like Hoover’s; (v) tariffs on products administration officials decide are especially sensitive. Since it isn’t clear which (if any) of these is the “real” plan, for now, critics need no detailed analysis or response. But we can start with two basic observations and principles applicable to all:

Tariffs and their uses: Tariffs have some valid uses. They can provide temporary protection for industries trying to rebuild competitiveness, for example, or help to economically isolate an aggressor state. But they always raise costs for families and goods-using businesses, incite foreign governments to retaliate against American farm and manufacturing exporters, and often reward good lobbyists more than good products. As Laura Duffy points out in her PPI report last fall, tariffs are also inequitable and regressive as both consumer and business taxes. So they’re generally poor policy, and governments should reserve them for the unusual cases where they’re really necessary.

The Biden record and its lessons: Critics should not be bound by “Bidenomics,” and, in fact, should make some clear breaks with it. President Biden’s 2021-2024 program had many good results — steady growth, low unemployment, a strengthened semiconductor industry,  and progress on decarbonization. But it ended as a political liability, and his approach to tariffs contributed to this.  Despite several useful trade innovations (e.g., the Commerce Department’s export promotion ideas and the Treasury’s “friendshoring” concept), the administration abandoned the market-opening, liberalizing values of Roosevelt-to-Obama Democrats and tried instead to blur differences with Trumpism by leaving Mr. Trump’s 2018/19 tariffs mostly untouched. This cost the Biden team a chance to bring down prices by cutting tariffs; left it unable to assign the first Trump term its appropriate share of blame for the post-Covid inflation burst; and (as we warned in mid-2023) by 2024, lacked the positive growth-and-living-standards agenda that should have complemented Vice President Harris’ forceful critique of Trump’s tariff hikes.

Now back to the four principles:

1. Defend the Constitution. The Constitution gives Congress full authority to set “Taxes, Duties, Imposts, and Excises.” For good reason: if a president can create his or her own tariff system by decree, not only do impulsive and ill-considered decisions become more likely, but all future presidents would face standing temptation to use tariffs in corrupt ways to reward supporters and cronies, or punish critics and rivals. Attempts to impose tariffs by perverting existing laws meant for wholly different purposes – emergency actions meant for a sudden crisis, trade negotiating leverage, etc. – and rule by decree rather than legitimate (even if ill-judged) legislation breach the separation of powers and harm the Constitution, and should be opposed on principle.

2. Connect tariffs to American family living standards, growth, and work. Tariffs are usually poor policy. As consumer taxation, they hit single moms much harder than stockbrokers, and average families much more than wealthy households. As business taxes, they raise costs for goods-purchasers — manufacturing, retail, restaurants, farms, building contractors — more than for investment- and services-heavy industries like real estate and finance. And as trade policy, they invite retaliation against America’s $3 trillion export sector — top in the world for agriculture, services, and energy, and second in manufacturing — whose factories and farms deserve better than to have an administration turn them into trade-war cannon fodder.

3. Stand by America’s allies and neighbors. America’s alliances with democracies and close relations with neighbors are strategic assets built over decades. Mr. Trump’s use of his free time in these past months to pick fights, including through tariff threats, with allies and neighbors from Canada and Denmark to Mexico and Panama has thus been an especially corrosive and disturbing part of this transition period. Economics apart, these countries have stood with the U.S. when it counted a lot — not long ago, and at a considerable cost. Remember, for example, that Denmark lost 43 soldiers in Iraq and Afghanistan and Canada 158. Neither deserves repayment with bullying and economic threats. The right policy is to deepen and strengthen these relationships, and to oppose attempts to erode and weaken them through tariff threats.

4. Offer a positive alternative. Though the incoming administration’s plans are uncertain, and there’s no need yet for a detailed alternative, it’s useful even now to consider the shape it might take. The essay suggests three lines of policy:

* International engagement: Modernized trade agreements to deepen and strengthen economic relationships with friends, neighbors, and allies. These can include U.S.-Europe agreements with the United Kingdom as an immediate choice; a return to the 15-country Trans-Pacific Partnership, now functioning very well as the “CPTPP” for Japan, Australia, Canada, and other allies, including the U.K.; and using the 2026 “USMCA” “review” to broaden that agreement to Caribbean, Central, and South American countries.

* Domestic reform to cut costs: Cut the cost of living for hourly-wage families by scrapping especially regressive, discriminatory, and sexist tariffs, with the Pink Tariffs Study Act introduced by Representatives Lizzie Fletcher and Brittany Pettersen as the starting point.

* Constitutionally appropriate policymaking: Here the Prevent Tariff Abuse Act introduced in December by Reps. Suzanne DelBene and Don Beyer, which excludes tariffs from actions presidents can take under the International Emergency Economic Powers Act, sets the example.

Here’s the piece.

FURTHER READING

Gresser on Tariffs and Economic Isolationism: Four Principles for a Response.

More from PPI on trade policy, tariffs, and America in the world economy:

Gresser’s December 2024 testimony to the Joint Economic Committee on the implications of a higher national tariff.

…and from early 2023, his warning (in response to a disquieting speech by the National Security Advisor) about the Biden administration’s poor tariff-and-trade positioning for a rematch with Trumpism.

Laura Duffy’s It’s Not 1789 Anymore explains why, though tariffs were the best of a poor set of options for the first Congress in 1789 and remain important for revenue in very low-income and troubled countries today, they’re a bad form of taxation — high rates and narrow base mean they can’t raise enough revenue, also opaque, regressive, and inequitable.

Yuka Hayashi’s The U.S. Wants Manufacturing to Drive Growth. Foreign Friends Can Help on pooling economic strengths with allies.

And just for the record …

What happened the last time the U.S. government tried a general tariff increase?  Herbert Hoover’s “Tariff Act of 1930”, colloquially known as “Smoot-Hawley” for its Congressional authors Sen. Reed Smoot and Rep. Willis Hawley, passed on a rainy June day in 1930.  Metaphorically, the rain continued for years:

* Bureau of Economic Analysis, GDP in ‘real’ 2017 dollars; U.S. 2024 GDP by this measure is now $23.4 trillion.

Modern economic historians view this tariff increase not as a main cause of the Depression – conventionally dated as starting eight months earlier, with the stock market crash of late October 1929 — but as a bad idea that made it deeper and longer. (Depending on one’s preference, “main causes” include financial-system collapse and serial bank failures without deposit insurance, absence of a “lender of last resort” for distressed but viable sectors, failure of government to respond with fiscal stimulus as household spending collapsed, Federal Reserve interest policies, the “gold standard” as an international factor, and so on.) The tariff increase created no jobs or investment, and the foreign retaliations it brought helped wreck the export sector and seal potential routes to relief. Four looks at the experience:

Charles Kindleberger’s analytical The World in Depression, 1929-1939

J.K. Galbraith’s The Great Crash, 1929 on the view from Wall Street in the months before Smoot-Hawley.

Franklin D. Roosevelt’s 1936 Address to the Inter-American Conference on the Maintenance of Peace in Buenos Aires, looks back six year later on rising trade barriers, the collapse of trade, and their effects on peace and security.

And Douglas Irwin’s Peddling Protectionism has a contemporary take at the Hoover administration, Congress, the Tariff Act of 1930, and its consequences.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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FACT: India has 84 of the world’s 100 most air-polluted cities.

THE NUMBERS:  Share of annual deaths attributable to air pollution* – 

Further Reading

IQ Air’s World Air Quality 2024 report.

The U.S. Environmental Protection Agency explains “PM 2.5” and U.S. clean air laws.

And the World Health Organization on air pollution as a cause of death.

Top and bottom:

Kuusamo, just south of the 66th parallel — for American readers, about 80 miles north of Nome and Fairbanks –advertises excellent skiing seven months a year, as well as the world’s freshest air. If you’re planning a vacation, though, note that in this winter season, Kuusamo gets less than four hours of sunlight. Tomorrow’s dawn is 10:14 a.m., and darkness returns by lunchtime at 2:06 p.m.

Begusarai residents, meanwhile, can check in with Bihar’s air quality monitoring service to see whether it’s safe to go outside.

South Asia:

al-Jazeera asks why South Asia’s air is so bad.

The World Bank looks at ideas and air quality policy in India.

… and finds overuse of brick kilns and home ovens burning wood and other biomass as core causes of Bangladesh’s highest-in-the-world national PM 2.5 rating.

Pakistan’s College of Physicians and Surgeons looks at health and air quality challenges.

Rankings (cities):

Here’s a selection of 60 of the report’s 7,812 cities, illustrating (a) the worldwide range from Kuusumo’s 7,812th-place 0.3 micrograms per cubic meter of air to Begusarai’s top-ranked 118.9, and (b) the U.S. range (American cities in italics) from the low of 1.9 micrograms in Wilson, N.C., to Coraopoli

Rankings (countries):

Shifting from cities to countries, only ten countries meet WHO’s “healthy air” standard of 5.0 micrograms of particulate matter per cubic meter of air. Most are small islands such as Tahiti, Mauritius, Bermuda, and Iceland. The best big-country records are Australia’s and New Zealand’s, with Baltic Sea countries Estonia, Finland, and Sweden also very good. On any given afternoon, Bangladesh’s 79.9 micrograms of particulate matter per cubic meter means Bangladeshis are breathing 20 times as much dirt as New Zealanders, with their best-in-class 4.3 micrograms. A sample:

America’s worst air day:

The 2023 Canadian wildfire smoke event peaked on June 8. That day’s PM 2.5 readings, the 21st century’s worst for the United States, reached 196 micrograms per cubic meter in New York and 141 micrograms in Washington, D.C. — that is, levels typical of a bad but not unusual week in northern Indian cities. The day’s national average was 27.5 micrograms. The Guardian looks back.

… and the Washington Post lets you look up that day’s PM 2.5 ratings by city:

And last:

A morbid chart from Our World in Data counts total annual world deaths. Note the sharp spike in 2020 during the COVID pandemic, from 58.4 million deaths in 2019 to 69.7 million in 2020, followed by a drop back to last year’s 61.7 million.

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

Read the full email and sign up for the Trade Fact of the Week.

FACT: U.S. tariffs are taxes paid by Americans.

THE NUMBERS: Spending on goods by American household type* –

WHAT THEY MEAN:

Live at 2:30 p.m.: PPI’s Ed Gresser testifies this afternoon at Congress’ Joint Economic Committee on potential of higher U.S. tariffs as proposed by the Trump/Vance campaign last fall.  The hearing kicks off in half an hour.  In the interim, here are the four main points: a higher tariff rate means higher prices, damaged industrial competitiveness, multiple harms for U.S. exporters, and — depending on the method — can mean some systemic risk of corruption and damage to American governance.

A brief explanation of tariffs first, since recently — as the testimony observes — over the past year we’ve had “some puzzling assertions that foreigners might somehow pay tariffs. No: U.S. tariffs are taxes paid by Americans.” The basics:

A tariff is a tax on goods bought from overseas, paid to Customs and Border Protection by the U.S.-based individual or business receiving those goods at the border.  For retailers, the tariff becomes part of the store price; for manufacturers, construction firms, or farmers, part of the production cost. Consider, for example, a retailer ordering a container of 10,000 men’s cotton shirts, hypothetically valued at $10 each. These have an “MFN” tariff of 19.7%, set out in line 61051000 of the U.S. Harmonized Tariff Schedule. So the retailer writes three checks:

$100,000 to the source for the shirts
$19,700 to CBP for the tariff
$5,000 to a shipping company for carrying the container.

These together make up her “landed cost” of $124,700 — i.e., the base expenditure from which she marks up to cover her domestic transport, wage and salary, and other costs, and earn enough per shirt to profit. So the shirts have cost her $12.47 each, including $1.97 in tariff payment. A week later at the cash register, the price includes this embedded tariff, amplified by markup and sales tax. The retailer has written the check; the shopper has borne the cost. Again, U.S. tariffs are taxes paid by Americans.

Now the main points. What we raise the U.S. tariff rate — 2.4% last year — to 10% or 20%?  Three economic results, and perhaps (depending on the method) something more.

First: Prices rise for families as we add 10%, or 20% (or whatever the number might be), to the current tariff system’s taxation of shirts, winter vegetables, energy, OTC medicines, and so on. A series of studies earlier this year — including from Erica York of the Tax Foundation and Brendan Duke of the Center for American Progress, both also appearing at this afternoon’s hearing — suggest that a 10% tariff plus a higher rate on Chinese-made goods would cost families $2,200 to $6,000 a year. That’s a jump of at least 10% from the $25,150 the Bureau of Labor Statistics found average families spending on goods last year.* The costs of this type of tax increase fall most heavily on low-income families and least heavily on wealthy families — naturally, since lower-income households spend more of their income than average buying goods, and top-end households less. The numbers from BLS: in 2023, single-parent families spent 38.6% of their modest $52,500 post-tax income buying food, clothes, cars, furniture, toasters, etc..  This is twice the 18.9% top-decile households (with $271,600 in post-tax income) spent on goods; the national average, 28.6%, is exactly in the middle.

Second: Goods-using parts of the U.S. economy — retail, manufacturing, agriculture, construction, restaurants — decline relative to non-goods users. This is because, all else equal, if you tax one part of the economy but not another, the taxed part gets smaller. (In relative terms, not necessarily in total.) As tariffs on energy, metals, paint, fertilizer, and other inputs raise factory and farm production costs, U.S. manufacturers and agriculture will lose ground to foreign rivals. Construction firms and retailers, meanwhile, lose sales as home prices rise and sticker shocks hit groceries, drug stores, and clothing aisles.  So (again, all else equal), these goods-using parts of the economy gets smaller relative to businesses who spend less on goods — say, real estate and financial services firms — who put much more of their money into investment and services. This may already be happening even with the less ambitious 2018/2019 tariffs on steel, aluminum, and many Chinese goods: since 2018, U.S. manufacturing has dropped from 10.9% to 10.0% of American GDP, and manufacturing trade deficits have nearly doubled.

Third: Exporters suffer multiple harms.  The $3 trillion American export sector — top in the world for agriculture, energy, and services, second for manufacturing — faces a particularly grim outlook even apart from the direct effect of higher production costs. Most obviously, countries hit with tariffs — especially in violation of trade agreements – often retaliate.  Exporters are then the “cannon fodder” of trade wars — the first pushed into the front line, and the first to fall. To note a particular “sector.” farmers are typically early retaliation targets, and 20% of farm income comes from exports. Or to take a particular community, the 1,139 African American-owned exporters Census and BEA counted last year on average employed 21 workers at a payroll of $75,000 per worker, compared to 11 workers at $54,500 for all privately held U.S. businesses.

Less obviously, many export losses come without retaliation at all. As we noted earlier this month, the $141 billion in Texas, New Mexico, and Arizona exports flowing south to Mexico last year included tens of billions of dollars in auto parts, semiconductors, and other specialized products sold to Mexican assembly plants. Tariffing or blocking the cars and appliances they produce means they will shrink; then, in turn, they place fewer orders with their Phoenix, Rio Rancho, El Paso, and Houston suppliers, and they shrink too.

Finally: Beyond the world of economics, Gresser expresses particular concern about speculation that lacking the votes to pass a big tariff increase, the incoming administration might try to impose one by decree under one of a few laws designed for other purposes — declaring a “state of emergency” under the International Emergency Economic Powers Act, or again using Sections 232 or 301 of trade law, etc..

Generally, as a poli-sci rule of thumb, it’s not a positive sign for any country when a president or prime minister declares an emergency and tries to rule by decree.  In the U.S. — especially vis-à-vis tariffs and taxes — it shouldn’t happen, as the Constitution gives Congress unambiguous power over “Taxes, Duties, Imposts, and Excises.” And for good reason: if a president (or any single individual) has the power to create his or her own tax system, not only do poor and impulsive decisions become more likely, but all future presidents face a standing temptation to use tariffs in corrupt ways to reward cronies, family, and political supporters, or to punish business rivals and political critics.  Thus the testimony’s close: “this risks systemic harm to governance, and I hope no administration would proceed in this way”.

* BLS’ Consumer Expenditure Survey 2023; the percentages combine all spending on goods, excluding restaurant meals.

FURTHER READING

Watch live: The Joint Economic Committee’s hearing page; the testimony starts at 2:30 EST.

Gresser’s testimony.

More from PPI on tariffs and taxation:

Fiscal Policy Analyst Laura Duffy explains why, as “It’s Not 1789 Anymore” — in contrast to the founding generation, 21st-century America has the civil service and information needed for an efficient and equitable tax system — tariffs are a poor form of taxation.

And while we’re on the topic, PPI’s “radically pragmatic” budget vision puts tariffs, taxes, spending, and more all in context. From Vice President Ben Ritz and Ms. Duffy, a 10-year budget horizon featuring fairer taxes, lower debt burden, more space for discretionary spending, and restored “fiscal democracy.”

Can a president really create a new tariff system all by himself?

A PPI look at the Constitutional question on tariff powers (with text, James Madison’s notes on 1787 in Philadelphia, etc.) from last October.

Well-informed 21st-century arguments from trade lawyers/former senior trade officials on either side: Alan Wolff of the Peterson Institute says probably not, based on the Constitution and nature of trade laws; Bill Reinsch/Warren Maruyama/Lyric Galvin of CSIS believe it’s very likely, based on case law and precedent.

Happy Holidays! The Trade Fact will return in January. 

ABOUT ED

Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.

Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.

Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.

Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.

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