issue: Trade

U.S. tariffs are taxes paid by Americans.

Posted on by Max Sherrill

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

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

 

Household type Post-tax income Share of income spent on goods**
Top “decile” $271,600 18.9%
Average for all households   $87,900 28.6%
Single parent   $52,500 38.9%

 

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.

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

A Note on Korean Tech Policy

Posted on by Alyssa Brown

Korea has a vibrant tech sector, and a potent App Economy, led by companies such as Samsung, Naver, and Kakao. Korea is also a staunch ally of the U.S.

That’s why it’s particularly disturbing that the Korea Fair Trade Commission (KFTC) is working with Korean lawmakers on legislation that would impact particular U.S. tech companies. This action would make it more difficult for these companies to compete on fair terms with their Korean and Chinese rivals.

PPI believes in free trade, a principle that will come under pressure in the coming months. But we must remember that free trade implies fairness as well.

Moss and Gresser on Medium: Biden’s “To Do” List for His Last Weeks: Approve the Merger of Nippon Steel and U.S. Steel

Posted on by Alyssa Brown

By Diana Moss and Ed Gresser

As President Biden “runs through the tape” in his last weeks in office, he should take a few minutes to approve U.S. Steel’s purchase by Japanese firm Nippon Steel. Doing so would have myriad benefits and virtually no costs. The merger would help America’s heavy industry, support a core U.S. international alliance, and promote fair competition and supply for steel users in the United States. Approving the merger is, basically, the right thing to do.

Nippon Steel’s bid to purchase U.S. steel succeeded in late 2023. That is, at least as far as the money, the terms, and the agreement of U.S. Steel’s management and Board of Directors. The two companies agreed on a $14 billion deal that would bring new blue-chip Japanese technology and capital to a fading U.S. industrial icon and help preserve metal production in Pennsylvania.

Nonetheless, the Nippon-U.S. Steel merger has proved controversial. Fears about foreign ownership of a major American metals producer quickly generated opposition from both the Biden administration and the incoming Trump administration. The issues have also divided the United Steelworkers union, with union leadership opposing the deal while many Pennsylvania members support it.

Read more on Medium. 

29 Haitian garment factories exported 300 million clothing articles to the U.S. last year.

Posted on by Max Sherrill

FACT: 29 Haitian garment factories exported 300 million clothing articles to the U.S. last year.

THE NUMBERS: Haitian GDP (2023) –

Total  $19.6 billion
Remittances from abroad    $3.9 billion
HOPE/HELP exports    $0.8 billion


WHAT THEY MEAN:

In the holiday season, as we’re supposed to think at least a bit about those with less, here’s a useful last job for Congress: extend the U.S.’ three small ‘trade preference’ programs — acronyms “GSP,” “AGOA,” and HOPE/HELP” — for lower-income countries.

As an introduction, here’s an October piece from the International Labor Organization’s “Better Work” office in Port-au-Prince, worriedly entitled “Battling the Odds”. The ILO officers summarize the state of Haitian garment production and employment as follows:

“Throughout 2023 and the first half of 2024, Haiti has faced escalating crises, taking a toll on the nation’s socio-economic health. Gang-related violence is profoundly impacting daily life, with effects spilling over into the labour market, livelihoods and the well-being of workers. The garment industry has been seriously affected. Better Work Haiti’s most recent report delves into the data, revealing a troubling decline in operational factories, with one permanent and two temporary closures. The industry has seen a significant reduction in the workforce, with employment falling from 42,500 to 33,857 in just a few months, a loss of over 8,600 jobs.”

As they were writing up their report in September, “Better Work” was overseeing 29 Haitian garment factories in a handful of industrial parks — Port-au-Prince, Cap Haitien, Ouanaminthe — serving as guarantors for health and safety, wage and benefit, and other labor standards in lieu of a functioning labor ministry.  Last year these factories produced about 300 million garments for American retailers and brands — mostly T-shirts, with some tracksuits, pullovers, and sweatshirts as well. Over the past decade, these factories have earned about $1 billion a year in export revenue, with 2023 shipments a bit lower at $800 million.

The figure, a bit more than 1% of American clothing imports, is about 5% of Haitian GDP. To draw an intellectually shaky but illustrative parallel to the American economy, by BEA’s GDP-By-Industry data, you could combine the GDP shares of U.S. automotive manufacturers and dealerships (1.9%), energy production and refining (1.7%), film and music (0.4%), and air transport (0.6%) to get a similar share. At a personal level, the ILO-regulated apparel jobs as of 2021 (mostly women, often with on-site clinics) made up about a tenth of Haiti’s regular, hourly-wage-paying jobs. Statistics have been scarce since then, but even with falling factory employment the share of formal labor may have been higher earlier this year.

As the ILO’s comment suggests, Haiti’s protracted political crisis has damaged but so far not broken these businesses and their workers. For most of this year, Better Work’s factories were shipping about 800,000 clothing articles to the U.S. daily via the 40-hour boat ride to the Port of Miami, together earning about $50 million a month.

The factories persist because of a special trade program — HOPE/HELP, suitably upbeat acronyms for “Haitian Hemispheric Opportunity through Partnership Encouragement”, and “Haitian Economic Lift Program” — created 20 years ago.  This waives the pricy 16.5% tariff a cotton T-shirt normally gets, and has unusually simple and easy rules for the sorts of fabric factories can use to make the shirt. Last authorized in 2015, HOPE/HELP is scheduled to end in September next year.  So each week the uncertainty about its future prospects grows, and the prospect of its end appears already to be pulling business away. As the ILO’s staffers were writing up their report, one of their factories had shut, and the other two were temporarily closed. This week, only 13 factories appear to be open and producing. So the already substantial worries facing the seamstresses and their employers are growing rapidly more intense.

Now back to Congress, in this session’s last days. Haiti relies more heavily than any other country in the world on American ‘trade preference’ support. Haiti’s is an exceptional case in which loss of trade preference could spark a national economic crisis as well as well as harm to the workers.  But an exceptional case, HOPE/HELP isn’t alone.  The 24-year-old benefit for Africa, the “African Growth and Opportunity Act” — frequently termed the “cornerstone” of U.S.-African economic relations — is also set to expire next year, and the broader “Generalized System of Preferences” has been in a sort of legal limbo since 2020, with renewal serially frustrated by intense arguments over what we see as relatively minor differences in the wording of eligibility criteria, and then by ‘hostage-taking’ on unrelated topics.  Putting off renewal until next year is full of risk: a new Congress with new members unfamiliar with the programs, along with typically slow agency nominations, both make timely renewal hard to imagine and outright lapse fully possible.

These three programs represent a small share of U.S. trade flows: $29 billion in imports in 2023, about 0.9% of the $3.1 trillion in total U.S. imports, and well below the $80 billion from Ireland or the $53 billion from Switzerland. Despite this modest total, HOPE/HELP, AGOA, and GSP remain of great importance to Port-au-Prince’s anxious seamstresses as they “battle the odds” against them — and (via AGOA) to their garment-industry sisters in Maseru, Antanarivo, and Nairobi, and (via GSP) to tuna cannery workers in Honiara, jewelry-makers in Yerevan, and tannery guys in Asuncion. For Congress, a few minutes’ work for the less fortunate, before the Members go home for their own Christmas holidays, would be time well spent.

FURTHER READING


HOPE/HELP, and some context:

ILO’s “Battling the Odds” report, October 2024.

Commerce Department’s Office of Textiles and Apparel explains HOPE/HELP rules.

AGOA and GSP:

PPI on the Generalized System of Preferences.

And the African Growth and Opportunity Act.

Haitian background:

The World Bank on Haitian women in informal work.

Miami-based Haitian Times on remittances from expatriates — construction workers, restaurant dishwashers, professionals — as a second economic lifeline.

And what do “jobs,” “unemployment,” and similar terms mean in this context? World Bank databases say that Haiti’s labor force is about 5.2 million people — 45% in agriculture, 55% urban — with an unemployment rate of 15.7%. These figures suggest totals of 760,000 unemployed workers and 4.3 million with “jobs.” “Unemployment,” though, is a labor-market term invented in the 1880s and designed for wealthy countries in which most workers are in wage-paying jobs subject to national laws and taxes. The term, or at least its commonly understood American definition, doesn’t suit least-developed country realities in general, let alone in crisis. An actual on-the-ground WB report from 2021 guesses that even before the breakdown of government in 2022, 86% of “employed” Haitian workers, or about 4 million people, were in the “informal sector” — that is, doing irregular work in seasonal harvesting, maid and gardening work, day-labor on construction sites, and so on. These would be spottily paid, and not subject to minimum wage or occupational health and safety laws. This implies that about 500,000 Haitian jobs, such as those in the garment industry — 60,000 at the time, fewer now — offer safety inspection, minimum wage laws, and so on. The World Bank’s background on Haiti’s pre-COVID, pre-“gang era” private-sector 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.

American family spending on food is down by 28% as a share of family budgets since 2000.

Posted on by Max Sherrill

FACT: American family spending on food is down by 28% as a share of family budgets since 2000.

THE NUMBERS: Food share of annual American family spending* –

Year Food share of annual American family spending
2023   9.8%
2000 13.6%
1973 19.1%
1950 26.7%
1918 38.3%
* Bureau of Labor Statistics, Consumer Expenditure Survey.

WHAT THEY MEAN:

Governor Bradford remembers the first Thanksgiving in 1621:

“They [the fifty Pilgrims who had survived the first winter] begane now to gather in ye small harvest they had, and to fitte up their houses and dwellings against winter, being all well recovered in health & strenght, and had all things in good plenty; fFor as some were thus imployed in affairs abroad, others were excersised in fishing, aboute codd, & bass, & other fish, of which yey tooke good store, of which every family had their portion. All ye somer ther was no want. And now begane to come in store of foule, as winter approached, of which this place did abound when they came first (but afterward decreased by degrees). And besids water foule, ther was great store of wild Turkies, of which they tooke many, besids venison, &c. Besids, they had about a peck a meale a weeke to a person, or now since harvest, Indean corn to yt proportion. Which made many afterwards write so largly of their plenty hear to their freinds in England, which were not fained, but true reports.”

Bradford’s Pilgrims and their “some ninety” Wampanoag guests relied on the autumn fish, berries, birds, vegetables, corn, and game of early New England. Tomorrow’s Thanksgiving celebrants can pick from the same options: 21st-century New England has 30,700 farms on 3.75 million acres of land.  They sell $3.2 billion worth of produce annually, with Massachusetts bogs topping the U.S. in cranberries, Maine leading for blueberries and lobster, and Vermont for maple sugar. Native Americans likewise operate 56,000 farms and ranches (mostly in the West), producing $2.4 billion in crops and $6 billion in livestock each year. More broadly, American Thanksgivings draw in food from 1.9 million American farms and ranches, and more from the world beyond. The turkey and cranberry sauce are still mostly American birds and berries – Minnesota and North Carolina are the largest turkey-breeders – but they often find complements in Australian and Argentine beef, Thai and Ecuadoran shrimp, Irish and New Zealand butter, Mexican cilantro and avocado, South African wines and oranges, Canadian wheat and beer, Chilean berries and Peruvian vegetables, Sri Lankan tea and Colombian coffee, and West African chocolate. A bit of background to this:

Food-buying and spending: The World Trade Organization’s World Trade Statistics 2023 finds the U.S. the second-largest buyer of agricultural goods at $241 billion last year, behind China’s $285 billion and a bit above the EU’s $213 billion. (The U.K. and Japan are next at $86 billion and $84 billion.) This dazzling array of stuff looks pricy, but in a more realistic sense, it’s gotten steadily cheaper. As food-buying has “globalized,” as tariffs have fallen, and as shipping and cold-chain storage techniques have improved, Americans have spent steadily less of their money on food. The Bureau of Labor Statistics’ most recent Consumer Expenditure Survey, for example, reports that 9.8% of American family budgets now go to food — a drop of 28% since 2000, of half since the 1970s, and three-quarters over the last century.

Production and exports: And what about the producers? The 1.9 million U.S. farms and ranches top the WTO’s list of exporters with $198 billion in overseas sales last year – 1.2 billion from New England – and typically get a fifth of their income from foreign customers.  USDA’s database reports that U.S. farms and ranches annually ship out 190 million tons of food — soybeans, and wheat for Asian noodle shops, fresh vegetables for Latin America, corn for Mexican bakeries, beef and pork for the world, and 500 million pounds of turkey.  Here’s USDA’s businesslike 21st-century counterpoint to Governor Bradford:

“With U.S. agricultural output growing faster than domestic demand for many products, U.S. farmers and agricultural firms have been relying on export markets to sustain prices and revenues. As a result, U.S. agricultural exports have grown steadily over the past 25 years—reaching $174 billion in 2023, up from $57.3 billion in 1998.  The product composition of agricultural exports shifted over that 25-year span, reflecting changes in global supply and demand. Most notably, exports of consumer-oriented products—including high-value products (HVP) such as dairy products, meats, fruits, and vegetables—showed strong growth driven by increasing population and income worldwide, as well as a growing diversification of diet.”

So, with families spending less of their income on food, farmers shipping more high-value stuff abroad, and lots on the table tomorrow, we have much to be grateful for this week. We wish readers and friends a happy Thanksgiving Day.

FURTHER READING

Then & now:

Plymouth’s Pilgrim Hall Museum has the two surviving records of the first Thanksgiving, with Governor Bradford on food and Edward Winslow on Massasoit and his warriors.

The heirs of Massasoit at the Mashpee/Taunton Wampanoag Nation.

Native agriculture today:

Per USDA, 78,316 Native American producers operate 56,000 farms and ranches on 52.6 million acres of land, with $2.8 billion worth of crops and $3.4 billion in livestock annually.  The largest output is in Oklahoma and Arizona. Native American farmers are slightly younger than the average U.S. farm owner — 11% are 35 or younger and 34% over 65, as opposed to 9% below 35 and 38% above 65 for U.S. farmers in general — and are more likely to use farming as the main source of family income. A somewhat larger share of Native farm owners are women. USDA on 21st-century Native farm and ranch life.

The Inter-tribal Agricultural Council, based in Billings, Montana, promotes tribal farm and fishery exports.

And for DC residents and visitors, Mitsitam Café at the Museum of the American Indian has menus and material, as well as meals, on contemporary Native American farming and products.

Family spending on food:

The Bureau of Labor Statistics Consumer Expenditure Survey reports spending patterns by family type, income level, race and ethnicity, and more for 2023.

… and looks back over the Survey’s 130 years with figures on incomes and spending for 1901, 1918, 1934-1936, 1950, 1960, 1972-73, 1984-1985, and 1996-1997:

The Department of Agriculture looks at American farming and ag trade –

The Census of Agriculture 2022, released last February.

… a stat-snapshot of 21st-century New England farming, from berries and maple syrup to mink.

… a look at American agricultural trade and its place in farming and the rural economy.

… and the “Global Agricultural Trade System” database.

And world perspective:

The WTO’s World Trade Statistics 2024; see Tables 13 and 14 for food and ag trade export and import leaders. A quick table of top exporters:

World agricultural exports $2,276 billion
European Union:    $268 billion
U.S.    $198 billion
Brazil    $157 billion
China      $95 billion
Canada      $88 billion
Indonesia      $59 billion
Thailand      $56 billion
Australia      $50 billion
All other $1,305 billion

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.

U.S. exports in 2023: $3.1 trillion.

Posted on by Max Sherrill

FACT: U.S. exports in 2023: $3.1 trillion.

THE NUMBERS: U.S. export sales, 2023 –

Total*   $3.07 trillion
Manufacturing   $1.60 trillion
Services   $1.03 trillion
Energy   $0.32 trillion
Agriculture   $0.17 trillion
Mineral ores & scrap   $0.05 trillion
* Yes, the manufacturing/services/energy/ag/ore & scrap totals add to $3.17 trillion. This is because the “sectors” blur at the edges. USDA’s count of ag exports, for example, includes processed foods, which are also considered manufactured goods; likewise, jet fuel counts as “energy” and a refined manufactured good.

WHAT THEY MEAN:

Exporters are the “cannon fodder” of trade wars — the unwitting front-line conscripts who lose sales, output, and jobs first when the targets retaliate. Cautiously unsealing statistics buried for a century in the 1936 edition of the Almanac of Statistical Extracts, here’s how they fared after the U.S. government’s last such venture, the “Tariff Act of 1930”:

1929    $5.24 billion
1930    $3.85 billion
1931    $2.42 billion
1932    $1.61 billion

With this experience grimly in mind, here are three perspectives on their modern descendants as of 2023:

1. Totals: The Census keeps the official records for these things, and reports that, adding it all together, Americans earned $3.07 trillion selling things to foreigners in 2023. This was 11% of U.S. GDP, down a notch from the 12% at the end of the Obama administration, and 3% of all world economic output. Using the standard-though-imperfect definitions of economic “sectors,” the single big Census number breaks down into slightly smaller ones as follows:

Manufacturers are the top exporters at $1.6 trillion. Samples include 3 million cars and trucks exiting Michigan, Alabama, South Carolina, etc., for parts abroad, along with $65 billion worth of auto parts for overseas factories and repair shops; $278 billion worth of chemicals, with Texas, Indiana, Puerto Rico, and California the largest sources; $130 billion in airplanes, drones, satellites and other aerospace; half a million microscopes and 656,000 MRI machines (California, Tennessee, Texas and Massachusetts lead for medical equipment), $107 billion worth of medicines.

Energy comes next at $324 billion, rising fast as liquefied natural gas from Texas and Louisiana replaces Russian energy in Europe.

Then come $250 billion in “business services” — an amorphous mix of things delivered mostly in digital form, ranging from architectural blueprints to software programs, legal documents, entertainment and media revenue, engineering services, and telemedicine diagnoses.

Agriculture contributes $174 billion: 17.8 million tons of wheat, 680,000 tons of almonds, and 3 million tons of pork; or in dollar terms, $4.3 billion worth of fresh fruit, $1.5 billion in wine, and $27 billion worth of soybeans. By way of context, this was nearly a third of last year’s $608 billion in gross farm income. Seafood adds another $5 billion, with Alaska, Washington, Florida, and Maine the top landing sites.

Travel services are close behind at $190 billion (visits for medical treatment, overseas student tuition, tourism in general); then add in $175 billion for financial services and $134 billion in intellectual property revenue, $98 billion in transport services, $50 billion for 17 million tons of metal ore and 3 million tons of scrap for $50 billion, and so on.

2. World Perspective: How does this look as against other large economies? Per the WTO’s World Trade Statistics 2023, the U.S.’ $3.07 trillion in total exports was the world’s second-largest total behind world behind China’s $3.76 trillion, with Germany third at $2.15 trillion, followed by the Netherlands, Japan, and France. Or, dividing things somewhat more finely, Americans are the largest exporters of farm products, energy, and services, and second to China for manufacturing.

3. At home: Taking these numbers from spreadsheets and GDP shares to daily life, the Census reports 278,000 American exporting businesses. Their joint deep dive into these firms, in partnership with the Bureau of Economic Analysis, identifies 161,000 by owner type — 21,626 women-owned firms, 1,139 African-American, 96 Native Hawaiian and Pacific Islander, 8,078 veteran-owned, 14,947 large publicly held and other “unclassifiable” companies — altogether employing 48 million people. The striking characteristic is their especially high pay: $80,536 in payroll per worker, nearly 50% above the $54,474 per worker for non-exporters. On the land, meanwhile, last year’s export share of farm income may be unusually high. But USDA notes that farmers and ranchers expect in any typical year to earn 20% of their income from overseas, nearly double the 11% average across the economy.

In sum: The export sector is quite large at $3 trillion. It pays workers well, is much more concentrated in goods production and high-end services than the U.S. economy as a whole, and is an especially important part of the American rural economy. Keep these things in mind in the year ahead.

FURTHER READING

Then:

From the Census archives, the Almanac of Statistical Abstracts for 1936 (see part 8 for the trade data).

And a look at the Tariff Act of 1930 (“Smoot-Hawley” for its authors, Senate Finance Committee Chairman Reed Smoot and House Ways and Means boss Willis Hawley).

And for the bigger picture, Kindleberger’s The World in Depression, 1929-1939.

Now: 

Census trade data.

… counts of exporting and importing companies.

… and jointly with BEA, the deep dive on goods exporting companies, by size, market, race/ethnicity/gender of owners, and more.

U.S. Department of Agriculture briefs on ag trade.

The Energy Information Administration on the state of U.S. energy trade.

The Commerce Department’s International Trade Administration has state-by-state exports with products – from fish and semiconductors to tractors, fabric, medicine and sports equipment – and markets.

… and some more deep-dive work from the ITA statisticians finds 5.1 million of the U.S.’ 13.0 million manufacturing jobs “supported by exports”.

And international perspective: 

The WTO’s World Trade Statistics 2023 places the U.S. in world context.

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.

Gresser in The Washington Post: Love buying cheap stuff online? Thank a law that avoids Trump’s tariffs

Posted on by Alex Terr

It’s not clear what might happen when Trump takes office. He has discussed significantly increasing tariffs on products imported from China. If that happens, many more companies would probably try to save money by latching onto the tariff-free rule used by Temu, Shein and Amazon Haul.

“The higher the tariff on something, then the more attractive it becomes to find some way around it,” said Ed Gresser, a former U.S. trade official now with the Progressive Policy Institute. “De minimis is a legal way around it.”

Gresser, whose group generally opposes tariffs, believes that if the Trump administration expands tariffs, it would also want to change or end the tariff-free shipping rule.

Read more in The Washington Post. 

Liberalism is worth defending.

Posted on by Alex Terr

FACT: Liberalism is worth defending. 

THE NUMBERS: PPI’s Trade Fact emails since 2021 – 157

WHAT THEY MEAN:

We re-started this “Trade Fact” service just over three years ago, in October 2021. Here’s our opening paragraph:

“PPI re-launches this Trade Fact series under the political equivalent of storm warnings and lowering clouds, in the U.S and worldwide. Looking abroad, publics appear more tempted than at any time in decades to believe that their country’s gain must entail another’s loss. Looking inward, they seem increasingly at risk from authoritarian populists and illiberal political parties. And on a different level of analysis, trust among big-power governments has eroded; and the institutions and agreements built up since the Second World War to safeguard security and promote shared growth — whether NATO, the World Trade Organization, the European Union — accordingly seem ever more fragile.”

Events since have amplified the alarm we felt then. Last week’s election is very much among them, and we expect to say a lot about its implications in the coming weeks and months. Today in this 157th Trade Fact edition, though, we’d like to look back at some of the reasons we believe the election ended as it did, and then offer a thought about our own next steps.

First, though, a note of appreciation for President Biden. Through a half-century in public life, he set an example of good character, family values, commitment to public service, belief in American policy as a force for good in the world, and respect for democracy and the rule of law. In office these last four years, he very much lived up to the President’s role as the public face of the United States to the world, and as a role model for American young people. These qualities are easy to take for granted, but badly missed when they’re absent. Our friends who served in his administration — including a number of young PPI alumni — should be proud of their work.

Now to reflect on last week. The administration was aware of the drift of working-class American opinion toward radical-right populism, and wanted to respond with economic policies focused on working-class aspiration. Here, though, we had major differences with some of the choices it made, and believe our concerns were well-founded. We raise this not (or not only) to record dissent on important matters now in the past, but because we believe American liberalism now needs a very different approach. PPI President Will Marshall’s op-ed last Friday in The Hill looks at this in some depth, covering issues from student loan forgiveness and anti-trust to the gap between the large spending bills designed for specific national goals — for instance, on rural broadband deployment — and the slow, inefficient delivery of services hampered by bureaucracy, permitting rules, and unnecessary interest-group benefits.

Trade policy and America’s place in the global economy, the core focus of this “Trade Fact” series, are an important example. In attempting to understand working-class concerns and designing a response to them, the White House relied heavily on advice from officials of industrial unions and academic-left theorizers about “alternatives to neoliberalism,” and made a sharp break with the liberal-internationalist tradition of economic policy. Announced as doctrine in an ill-starred 2023 National Security Council speech, in practice this mainly meant decisions not to act: keeping the Trump administration’s tariffs in place and continuing its decision to block renewal of the WTO’s Appellate Body, renouncing market access for U.S. exporters as a goal and deciding against an affirmative China trade policy, letting the Generalized System of Preferences lapse, and dropping historic U.S. positions on promotion of digital trade and free flows of data.

Though these decisions did distinguish the Biden administration from the — politically and economically successful — Clinton and Obama eras, they didn’t work. Taken individually, they meant missed chances to promote growth and take full advantage of America’s strengths, particularly in new technologies; to reduce the cost of living for working families and offset the inflationary effect of the Trump-era tariffs; to help lower-income countries grow and reduce poverty; to promote the rule of law in the global economy; and to strength American alliances. Taken as a whole, as we warned immediately after the 2023 speech, the approach conceded so much ground to Trumpist isolationism that even Vice President Harris’ valiant and often inspirational fall campaign, with its concise, forceful, and entirely accurate attack on Mr. Trump’s proposed tariff hikes as a national sales tax, couldn’t win it all back.

Looking ahead, we will need a different strategy. In the coming months and years, PPI will argue for a return to a revived liberal-internationalist tradition, updated to address the economic, technological, environmental, and national security challenges of the later 2020s and 2030s and matched by appropriate domestic policies. At the same time, to the extent the incoming administration implements the neo-isolationism and resentful economic nationalism its campaign promised, we will be sharp critics and will catalog its results as they come in. In both areas, the commitment of our launch statement to liberal values — open markets and liberty, to activist but efficient and low-cost government, to special concern for the poor, to American leadership in the world — is unshaken. Here’s our optimistic close from the 2021 launch, which we believe holds up today:

“To ignore storm warnings and lowering clouds is reckless. The proper response to them is to identify those parts of a roof or a wall that may leak or give way in heavy weather, shore up their weaknesses or replace them with something better. It is equally important, however, to identify areas of strength, build upon them, and draw on the lessons they offer. In such things one can see breaks in the clouds, patches of sunlight ahead, and foundation for PPI’s belief that the liberal project remains vital, successful, and worth defending.”

FURTHER READING

Will Marshall in The Hill last Friday.

Trade Project highlights from these past three years:

Ed Gresser on the successes and gaps of Bidenomics.

… and the ominous error of the 2023 departure from liberal internationalism.

Laura Duffy on tariffs as a poor form of taxation.

Yuka Hayashi on “near-shoring,” Japan’s heavy-industry investment in U.S. production, and pooling allied strengths.

Elaine Wei and Gresser on the anti-female bias of U.S. clothing tariffs.

Malena Daily and Gresser on duty-free cyberspace.

And some Trade Fact Highlights, from high-seas pirate attacks and sexism in underwear tariffs to vanilla cultivation, forced labor, toasters, U.S.-Mexican auto trade, Arctic sea ice cover, tiger recovery in Thailand, the U.S.’ poor 21st-century infant mortality record, submarine cable and satellite deployment, Pacific Island trade strategy, U.S. digital-economy growth, international manufacturers in Ohio and container ship launches, bluebirds, earthworms, tall buildings, Lao v. Sima Qian in the first-ever globalization debate, and Valentine’s Day roses.

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.

Tariffs are a poor form of taxation

Posted on by Max Sherrill

TRADE FACT OF THE WEEK: Tariffs are a poor form of taxation.


THE NUMBERS: Countries’ reliance on tariffs as share of government revenue* –

County / Region Percentage
Gambia 41.6%
West Bank and Gaza (pre-war) 37.6%
Liberia 30.0%
St. Lucia 29.2%
United States Trump/Vance proposal 25.6%?**
Argentina 24.6%
Bahamas 19.6%
Somalia 18.0%
India   4.5%
China   2.9%
Brazil   2.0%
United States current   1.8%
Canada   1.6%
Korea   1.4%
New Zealand   1.3%
Japan   1.2%
United Kingdom   0.7%
European Union   0.5%

 

 

 

 

 

 

 

 

 

 

* World Bank, Taxes on International Trade (% of Revenue)

** Assuming the $2.18 trillion personal income tax is scrapped and replaced with a tariff yielding the maximum feasible revenue, likely $780 billion at rates of 50%.

WHAT THEY MEAN:

In PPI’s newest paper, It’s Not 1789 Anymore: Why Trump’s Tariff Agenda Would Hurt America, Fiscal Policy Analyst Laura Duffy examines the Trump campaign’s apparent hope to replace the U.S. income tax with a much higher tariff. Drawing from modern analysis and the Tariff Act of 1789 — Congress’ first-ever tax bill — she bluntly concludes that:

“Contrary to Trump’s claims that imposing Depression-Era level tariffs will restore America to a supposed former state of greatness, leaders of the past long recognized the weaknesses of relying on tariffs for revenue, and their concerns offer valuable lessons today. In particular, tariffs:
1.  Fail to raise enough revenue to finance a modern federal government
2.  Are especially non-transparent taxes that invite preferential treatment
3.  Undermine equity by imposing arbitrarily unequal tax burdens on different households
4.  Cause damage to downstream industries and the economy as a whole.”

Background: At least twice this fall, Mr. Trump has suggested replacing the U.S. personal income tax, and possibly the corporate income tax, with tariff revenue. This would scrap a broad-based revenue tax and swap in a big national surcharge on energy, OTC medicines, clothes, food, and other goods purchased abroad. His argument for this is a claim that in the 19th century (until the creation of estate and income taxes in the 1913 and 1916 Revenue Acts), the U.S. government relied mainly on tariffs for revenue; that during the 1890s, a period of particularly high tariff rates, the U.S. was the “wealthiest we ever were” (quite wrong: see “Further Reading” for a look at that impoverished and unpleasant decade); and that 19th-century tax policy is therefore right for 21st-century America.

To put real-world numbers to this, in 2023, the personal income tax raised $2.18 trillion. This was just under half of the Treasury’s $4.44 trillion total. Tariffs got $0.08 trillion, or 1.8%. Tax scholars report that the most money a theoretical high-tariff system could raise (setting aside the trade policy* and other economic problems it could cause) is about $780 billion. Assuming repeal of personal income taxes but no other tax changes, this would mean about 25.6% of U.S. revenue. No “developed” country now uses tariffs for more than 2.7% of revenue; World Bank tables find Gambia, whose government gets 41.6% of its money from tariffs, the most tariff-reliant country in the world. At 25.6%, the U.S. would be below Gambia, but in the neighborhood of tariff-heavy jurisdictions such as Somalia, the Bahamas, pre-war West Bank and Gaza, Nepal, and Ethiopia — that is, countries too small, politically disordered, and/or poor to operate professional bureaucracies able to assess and collect revenue from broader sources such as income, wealth, or consumption.

Going to the really primary sources, Duffy notes that the original U.S. tax writers in 1789 — sophisticated analysts such as then-House of Representatives figures James Madison and his Federalist sparring partner Alexander Hamilton at the Treasury Department — did not choose tariffs as the main early-republic and 19th-century revenue source because they believed tariffs were a particularly great form of taxation. Nor did they think a tariff would somehow off-load taxation onto foreigners. (With the Tea Party events and “taxation without representation” in recent memory, no early-republic politician would ever make such a claim.) Rather — much like governments in today’s high-tariff small island state and least-developed countries — they were aware that with no professional civil service and no way to calculate income or consumption, the U.S. could not tap broader revenue sources. By contrast, tariffs are easy to collect – seaports are few, and ship arrivals easy to monitor – and therefore the best of their unattractive options.

What would happen if someone tried to cut and paste this 18th- and 19th-century approach into the 21st century? Duffy makes the obvious point that it is not 1789 anymore, our options are better than theirs, and a Trump-like attempt to return to the distant tariff-based tax past would immediately run into one big problem and then cause another three:

(1) Tariffs can’t raise enough money: Very high tariff rates cause trade to collapse rather than raising money; with $3.1 trillion in goods imports and the theoretical maximum tariff revenue at $0.78 trillion, the income tax/tariff arithmetic doesn’t work at all. Replacing a $2.18 trillion income tax with an $0.78 trillion tariff system would nearly double annual U.S. fiscal deficits to $3.1 trillion — even before adding in the effects of lower growth, foreign retaliation, and the Trump/Vance campaign’s many additional trillions of dollars in tax cuts and spending increases over the next decade. The likely result is fiscal crisis and some combination of interest spike, inflation, and collapse of public services.

(2) Tariffs are less transparent than income or consumption taxes: Since tariffs are more ‘opaque’ than income, consumption, or other broad-based taxes, more reliance on tariffs would mean less public understanding of taxation. On the government and policy side, the Treasury Department publishes no annual analysis of tariff revenue by product or incidence by income level; in daily life, American shoppers never learn how much the tariff system adds to the prices they pay for shoes, food, bicycles, etc. The extreme complexity of nearly all tariff systems amplifies this failing. Even the 1789 Tariff Act, Duffy shows, immediately evolved from the simple across-the-board 5% rate Madison proposed to an unwieldy system awarding well-connected industries with especially high rates on nearly a hundred products — from rope, beer, nails and tacks, to soap and shoes. The 1789 Act’s descendant, today’s 11,414-line U.S. Harmonized Tariff Schedule, is far worse (though less important as a revenue source), with only a few specialists knowing the main rates and fewer still knowing who pays. Trumpist ideas, with their new layers of complexity, would spread this opacity across half the tax system.

(3) Tariffs are by nature regressive and typically get worse over time: Reliance on tariffs makes taxation more ‘regressive’ and tougher on low-income and working people.  In principle, as a tax on goods but not services, a tariff system taxes low-income families more heavily than wealthy households, because lower-income families spend more of their income on clothes, food, and home goods. Likewise, tariffs tax goods-intensive businesses (e.g., retail, manufacturing, construction, and farming) more than they tax investment- or service-buying industries such as real estate, law, or financial services. And in real life, 19th-century experts — say, Albert Gallatin, Treasury Secretary for the Jefferson and Madison administrations — knew by experience that the opacity of the tariff systems makes them easy for wealthy people and businesses with direct connections to government to manipulate. This means tariff systems usually grow more regressive over time, as rates fall on expensive luxuries but stay high for cheap goods whose buyers don’t know they’re paying. Again, the contemporary U.S. Harmonized Tariff Schedule illustrates the point, taxing cheap stainless steel spoons much more heavily than sterling, infant formula more than champagne, polyester shirts more than silks, and women’s clothes more than men’s.

(4) Economic harm: Finally, tariff increases invite economic harm — directly through damage to ‘downstream’ industries buying tariffed goods, and indirectly by encouraging foreign governments to retaliate against successful U.S. industries. Mr. Trump’s tariff increase on fertilizer, for example, will raise farming costs and simultaneously invite angry foreign governments to block American agricultural exports. In the same way, a new tax on metals, paint, and wiring, meanwhile, means higher costs and lost competitiveness for American auto plants and machinery manufacturers, higher prices for families buying homes, and more retaliation.

All this set out, here’s Ms. Duffy’s close:

“Replacing tariffs with direct taxes on incomes [in the 1913 and 1916 bills] was a huge step in making American public finance more rational and equitable. … Returning to tariff-heavy policies, as suggested by Trump, would be fiscally irresponsible and counterproductive. Beyond their revenue-generating limitations, tariffs are extremely susceptible to lobbying from protected industries at the expense of other businesses, workers, and consumers. Finally, the distortionary effects of returning to pre-modern tariff rates would be extremely damaging to the American economy and undermine the strong wage and job gains the country has seen in the past three years.”

* For example, abrogation of international agreements, and of basic Constitutional principles if a hypothetical Trump administration attempted to impose a tariff by decree; unprovoked harm to U.S. allies; retaliation against successful U.S. farm and manufacturing industries; etc.

FURTHER READING

Laura Duffy on Trumpism, tariffs as taxation, the Tariff Act of 1789, transparency and regressivity, and the folly of using tariffs as a 21st-century revenue source.

U.S. background:

Revenue from income taxes, tariffs, and other sources from OMB’s Historical Tables. See Table 2.1 for overall revenue shares, and Table 2.5 for “other revenue” sources for tariffs, excises, and other small taxes.

The White House’s Council of Economic Advisers on tariffs as revenue, regressivity, and inequality.

Albert Gallatin’s tariff analysis (1833) cites lack of transparency, bias against low-income families, and other drawbacks.

International context:

World Bank data on tariff share of government revenues.

And the 1890s weren’t a good time at all. Four points:

Life and health: An American’s average life expectancy in 1900 (Table 13) was 47. To put this figure in context, World Bank tables find the world’s lowest current national life expectancies in Chad and Lesotho, both at 53. The short lives of 1890s Americans reflected very high infant mortality — more than one child in ten died before the age of one — and frequent death in early life and middle age to accident, infection, and contagious disease. (No vaccines, blood transfusion, antibiotics, or anti-inflammatory drugs.)

Wealth and poverty: Americans were poor and spent most of their money on life necessities. Per BLS’ “100 Years of Consumer Spending,” the average family spent 58% of its income on food and clothes as against today’s 12%. Even the top end of “Gilded Age” society had only 8,000 automobile owners and 600,000 mostly communal telephones, in a country of 76 million.

Civil rights: Work and daily life in 1890s America were deeply unjust and getting rapidly worse. Between 1890 and 1895, 16 states adopted segregationist constitutions and laws covering marriage, voting, education, railroads, streetcars, and other matters, validated by the Supreme Court’s 1896 “Plessy v. Ferguson” decision. The National Archives remembers.

Economy: Whatever the impact of high tariffs, the 1890s economy was bad.  The decade’s main economic event, the four-year Depression following the “Panic of 1893,” introduced the word ‘unemployment’ to common English-language discourse. It also prompted the first mass protest in U.S. history, when “Coxey’s Army” of 6,000 desperate Ohio and Pennsylvania workers marched to the National Mall to appeal (unsuccessfully) for federal relief.

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.

PPI Report Warns of Economic Risks in Trump’s Proposed Tariff Agenda

Posted on by Max Sherrill

WASHINGTON —Throughout his 2024 campaign, former President Donald Trump has made imposing a double-digit tariff on all imports and a 60% tariff on goods from China a central pitch to voters, and has even suggested replacing the income tax with tariff revenue. The Progressive Policy Institute (PPI) today released a critical new report, “It’s Not 1789 Anymore: Why Trump’s Backwards Tariff Agenda Would Hurt America,” authored by Laura Duffy of PPI’s Center for Funding America’s Future, which warns of the steep costs of Trump’s plans to impose taxes on all imports at levels not seen since the Great Depression.

In the report, Duffy draws striking parallels between Trump’s plan and the debates over and effects of historical tariff policies going back to 1789. She argues returning to tariff-heavy strategies would not only make it impossible to fund government spending commitments that have grown since the country’s founding, but would also harm downstream industries and greatly burden American taxpayers and workers.

“When the United States was much poorer and less developed, tariffs were one of the only feasible ways to collect revenue. But even as far back as 1789, leaders recognized the weaknesses of relying on tariffs as a basis of our tax system,” said Duffy. “Today, no developed country relies on tariffs as a major revenue source, and Trump’s tariff proposals would be fiscally irresponsible, economically destructive, and costly to American families.”

Duffy outlines four main problems with Trump’s tariff proposal:

  • Inadequate Revenue Generation: Modern government spending levels cannot be supported by tariffs alone, which generate far less revenue compared to income taxes.
  • Non-Transparency: Tariffs are complex and hidden, making them vulnerable to special interests and rent-seeking by domestic industries.
  • Equity Concerns: Tariffs likely place a disproportionate burden on low-income households, which tend to spend more on imported goods.
  • Economic Disruption: Tariffs raise costs for industries relying on imports and invite retaliation from other countries, leading to reduced production and lost jobs.

Because of these issues with tariffs, Duffy argues that the shift to tax income instead of trade was a success for progressive policy goals and the United States’ growing global leadership role alike. Instead of turning back the clock to a much earlier (and less prosperous) era of American history as Trump suggests, Duffy recommends the United States address its budget deficits and promote equity by shifting the tax code towards fairer and less destructive taxes like a value-added tax.

Read and download the report here.

The Progressive Policy Institute (PPI) is a catalyst for policy innovation and political reform based in Washington, D.C. Its mission is to create radically pragmatic ideas for moving America beyond ideological and partisan deadlock. Learn more about PPI by visiting progressivepolicy.org. Find an expert at PPI and follow us on Twitter.

###

Media Contact: Ian O’Keefe – iokeefe@ppionline.org

It’s Not 1789 Anymore: Why Trump’s Backwards Tariff Agenda Would Hurt America

Posted on by Max Sherrill

Introduction

“[W]e should find no advantage in saying that every man should be obliged to furnish himself, by his own labor, with those accommodations which depend on the mechanic arts, instead of employing his neighbor, who could do it for him on better terms.”

— James Madison

In a stark break from nearly a century of fiscal and trade policy, former president Donald Trump has made imposing significant import tariffs a central part of his policy agenda for a second term. At various times, he has campaigned to put a 10% to 20% tariff on all imports and a 60% tariff on goods from China, and he has even speculated about completely replacing the income tax with tariff revenue. If he were elected and made good on these promises, the average tariff rate would soar to levels not seen since Congress imposed the Smoot-Hawley Tariff of 1930.

Though Trump’s proposals to base the tax system on tariffs have been virtually unheard of in the post-World War II era, debates over tariffs are as old as our country itself. During the 18th and 19th centuries, when the federal government’s obligations were dramatically smaller than today, tariffs were indeed the major source of tax revenue. Contrary to Trump’s claims that imposing Depression-Era level tariffs will restore America to a supposed former state of greatness, leaders of the past long recognized the weaknesses of relying on tariffs for revenue, and their concerns offer valuable lessons today. In particular, tariffs:

1. Fail to raise enough revenue to finance a modern federal government.
2. Are especially non-transparent taxes that invite preferential treatment.
3. Undermine equity by imposing arbitrarily unequal tax burdens on different households.
4. Cause damage to downstream industries and the economy as a whole.

As a result of these weaknesses, the United States (in line with every other advanced economy) largely abandoned tariff-heavy fiscal policy by the mid-20th century to facilitate the federal government’s expanding socioeconomic goals and greater role in the world. Revisiting the contentious history of tariffs in the United States — going all the way back to the Tariff Act of 1789 — reveals why Trump’s promise to return to using tariffs as a basis of tax policy would severely undermine the United States’ fiscal stability, tax fairness, and economic growth today.

Read the Full Report.

 

The U.S. economy has grown by 13.5% since 2020 and employs 17 million more workers

Posted on by Alyssa Brown

TRADE FACT OF THE WEEK: The U.S. economy has grown by 13.5% since 2020 and employs 17 million more workers.


THE NUMBERS: 2024 vs. 2020 & 2019 – 

2024
GDP (real 2023 dollars)  $28.2 trillion?*
Employment  159 million jobs

2020
GDP (real 2023 dollars)  $24.8 trillion
Employment  142 million jobs

2019
GDP (real 2023 dollars)  $25.3 trillion
Employment  149 million jobs

* International Monetary Fund, using their April 2024 World Economic Outlook database’s estimates of a $27.36 trillion GDP for the U.S. in 2023, and 2.7% real growth in 2024. Data for 2020 and 2019 from the Bureau of Economic Analysis database, with GDP converted from BEA’s “constant 2017 dollars” to “constant 2023 dollars.”

WHAT THEY MEAN:

Are we better off? In some ways, the question is harder to answer than usual, since the COVID pandemic can make comparisons of output, employment, and associated data for 2020 misleading. So accepting this and trying to provide the appropriate context when necessary, here are four then-to-now comparisons plus one optimistic bit of future-oriented data:

Size: The economy is noticeably larger. Measured by “GDP,” the U.S. economy of 2024 is likely to come in at about $28.1 trillion in “real,” inflation-adjusted, 2023 dollars or perhaps a little more depending on the last two quarters’ growth rates. In these “real dollars,” this is about 13.5% larger than the $24.8 trillion of 2020, and 11% larger than the $25.3 trillion of 2019. Put another way, the $3.4 trillion or so added since 2020 is slightly below the IMF’s forecast for India’s $3.9 trillion total GDP and the UK’s $3.5 trillion, and nearly double Russia’s $2.05 trillion.

Employment: More Americans are working. This autumn, 159 million workers, execs, and interns go to offices, labs, factories, construction sites, and so forth each morning. (Or to the restaurant kitchen in the evening, the farm or home office any time of day, the hospital ward or security office for a night shift.) That’s 17 million jobs, more than the 142 million of January 2021, and 10 million more than the pre-COVID 149 million of January 2020. An additional 10 million workers, as a point of comparison, is the same as the total labor force of the Netherlands; 17 million would fall between Australia’s 14 million workers and Canada’s 22 million.

Income: The “distribution” of money to all these people has become a bit less skewed, as we noted earlier this month, and a bit better for hourly-wage workers. The Census Bureau’s data for “median family income” — that is, income for the family in the exact middle of America’s 131 million households — provides one angle: median income (again in “real” inflation-adjusted dollars) at $80,610 as of 2023, up $1,050 from the $79,560 of 2020, with African American family median income growing fastest at $2,650. Or, taking the “worker” rather than the “household” perspective, the Bureau of Labor Statistics’ “real wage” reports show something similar: wages are up about 2% on average from the levels of early 2020 just before the pandemic, with especially fast growth in some blue-collar fields: 9% real wage growth for gas station attendants, 5% for clothing retail staff, 7% for hotel workers, 8.7% in auto repair shops, and 8.0% for beauty shop and hair salon specialist.

Composition: The economy has shifted a bit. The Commerce Department’s Bureau of Economic Analysis (the official GDP tracker) reports that growth has been fastest in information and services industries, making them now somewhat larger relative to the other parts of the economy than they were four or five years ago. Using 2019 as a base, BEA’s “GDP by Industry” reports show “information industries” — internet, computer networks, media – up by 36% or by $380 billion in real, inflation-adjusted terms, as the digital economy has grown about four times as fast as the rest of the economy. A related BEA category, with the vague and expansive title of “miscellaneous professional, scientific, and technical services,” is up 32% or by $300 billion. Elsewhere, real estate is up by 17% or (given its large original base) $410 billion), manufacturing by 12% or $200 billion, retail likewise by 12% and $150 billion; restaurants and food service, are still not fully recovered from their especially severe pandemic shock, are down by -1% or by $6 billion.

Science: Finally, looking ahead, the research-and-development workforce has boomed. Since January 2021, 150,000 new R&D scientists have joined the sci/tech workforce — 885,000 now, 735,000 then. If you start at pre-COVID January 2020, the jump is even higher: 190,000 net new lab rats. Figures for R&D spending take a few years to tabulate, but the National Science Foundation’s reports show U.S. R&D spending up from 3.0% of GDP in 2019 to 3.4% in 2022 — about 30% of all world research, and relative to the economy the U.S. ranks fourth in the world, behind only South Korea, Taiwan, and Sweden. All this hints at new inventions and rising productivity in the late 2020s and early 2030s.

So: To answer the basic question, yes, we do seem better off: a larger economy, with inflation down after the Treasury and Federal Reserve’s successful pandemic-aftermath macro management; more and better-paid workers and unemployment rates low; faster income growth in the lower tiers of the income tables; and reason for optimism about what’s coming next. The country is by no means short of problems to fix and policies that could be improved or replaced. But as the campaign season nears its end, some of the country’s largest risks come from bad ideas — trade and security isolationism, for example — or problems left untended such as long-term debt buildup. Or, put another way, from costly mistakes that voters can prevent, and from long-term challenges governments can address if they choose. In general, a pretty good record, and lots of reasons for optimism.

FURTHER READING

Data:

BEA’s GDP database.

The Bureau of Labor Statistics on earnings and wages.

Census on incomes.

… and comment on wage patterns from the White House’s Council of Economic Advisers.

The National Science Foundation on research and development.

Perspectives from PPI:

Ed Gresser on the risk of the Trump campaign’s economic and political isolationism, trade and hourly-wage America, and Vice President Harris’ opportunity.

Ben Ritz and Laura Duffy with PPI’s in-depth blueprint for tax, budget, debt, and fiscal democracy.

And from government:

Treasury Secretary Janet Yellen on the economic outlook at home and worldwide.

And CEA’s annual big-picture Economic Report of the President 2024.

World context: 

The IMF’s World Economic Outlook 2024 (October update) on global growth, pandemic recovery, risks, and more.

Using currency-basis comparisons (current 2024 dollars, so the U.S.’ figure is slightly larger than the 2023-dollar estimate above), here’s their data on the U.S. in the larger world economy of 2024:

World                                     $110.4 trillion
United States   $28.8 trillion
European Union   $19.0 trillion
China   $18.5 trillion
Latin America & Caribbean     $7.0 trillion
Middle East & Central Asia     $5.0 trillion
Japan     $4.2 trillion
ASEAN-10     $4.1 trillion
United Kingdom     $3.5 trillion
India     $3.9 trillion
Canada     $2.2 trillion
Russia     $2.1 trillion
Korea     $1.8 trillion
Australia     $1.8 trillion
Sub-Saharan Africa     $1.5 trillion
All Other     $3.7 trillion

This year’s 26.2% U.S. share of world output is up from the 25.5% share of 2020, and the 24.6% share of 2019, reflecting the relatively stronger U.S. recovery after the COVID pandemic and also relatively high dollar values vis-à-vis other currencies.  Note that this currency-basis approach, affected by foreign exchange rates, gives the U.S. an especially large GDP share, though. The alternative “purchasing-power parities” (avoiding currency-value distortions, and trying to calculate a world in which basic services cost as much in lower- and middle-income countries as in wealthier countries) makes the world economy much bigger — $187 trillion, with China, India, Latin America, ASEAN, Africa, and the Middle East all larger — while the U.S. count is identical and the EU, UK, Canada, Japan, Australia, and Korea pretty much the same.

Or, try labor force counts from the CIA’s World Factbook.

U.S. Constitution: “Congress Shall Have Power to Lay and Collect Taxes, Duties, Imposts, and Excises”

Posted on by Max Sherrill

TRADE FACT OF THE WEEK: U.S. Constitution: “Congress shall have Power to lay and collect Taxes, Duties, Imposts, and Excises.”


THE NUMBERS: Tariff collection 2018-2024 –

Congressionally authorized “MFN” tariff system: $216 billion
Administratively created “301” and “232” tariffs: $249 billion

WHAT THEY MEAN:

The 2024 election’s core questions are more basic than policy choices.  Such as: Can a person who has attempted to overthrow a settled election, and called for “termination” of unspecified parts of the Constitution, take and keep an oath to ‘faithfully execute the office of President of the United States’ and ‘preserve, protect, and defend the Constitution’? With this in the background, here’s the person in question talking about Congress and his tariff plan (10%, or 20% tariff on all products, and a 60% tariff on Chinese-produced goods):

“I don’t need them. I don’t need Congress, but they’ll approve it.  I’ll have the right to impose them myself if they don’t.” 

Such ideas would have big daily-life impacts. (How would a 20% tax on the $300 billion in U.S. energy imports affect heating and gas bills? on the $139 billion worth of auto parts bought by factories and repair shops? on family budgets for over-the-counter medicines, clothes, and groceries?) The insistence on going without Congress, though, raises a more basic and abstract question of governance: who should be able to impose a tax?

The Constitution gives a pretty clear answer. Its four sentences on trade policy all come from “Article I” (on Congress), with two from Section 8’s “enumerated powers” list, and two from Section 9’ “denied powers” list. The first (see below for the others) says flatly that “The Congress shall have Power to lay and collect Taxes, Duties, Imposts, and Excises.”

Giving Congress this power wasn’t a big Constitutional-drafting controversy. The “taxes, duties, imposts, and excises” clause, in fact, appears to have survived untouched from the first draft presented to the Constitutional Convention on August 6, 1787, to its publication on September 19th. James Madison’s notes of the August 16 session (the day the Convention debated import and export taxes) report none of that day’s 15 speakers arguing that a president should be able to set tariff (or other tax) rates. Why not? A single individual given power to set tax rates could use them to reward self and friends, punish critics, impoverish political or business rivals, etc..  A big Congress with lots of mutually suspicious factions might not find this impossible, but would have much more trouble agreeing to do it.

This pristine separation-of-powers approach thinned over time for practical reasons, as 19th-century case law (Brig Aurora in 1813, Field v. Clark in 1892) and 20th-century trade bills alloyed it with several forms of “delegation.” “Trade remedy laws,” for example, authorize tariffs in cases of ‘dumping’ and subsidies; “trade promotion authority” bills set out content and implementation rules for free trade agreements and similar ‘liberalizing’ policies, after giving detailed descriptions of when Congress would like Presidents to do these things. Whatever one’s opinion of the merits of trade remedy laws and trade agreements, “delegation” in these cases seems clearly a convenience in which Congress defines policy and asks presidents to execute it without the need for a new law, and courts have decided this is reasonable.

Three or four other laws, though, may have inadvertently provided presidents with something closer to genuinely arbitrary power. “Section 232” and “Section 301” of the U.S. trade law code give presidents rights to impose tariffs by themselves, respectively, as a negotiating tactic to eliminate “policies and practices” burdening U.S. commerce, and as a way to defend expansively described national security interests. The first Trump administration used “232” to raise tariffs on steel and aluminum, and “301” to do this for most Chinese-made goods. As a practical matter, this roughly doubled the size of the tariff system, with the new administratively created tariffs yielding slightly more than twice as much tax revenue as the Congressionally legislated “MFN” tariff system. Two other laws, “Section 338” and the International Emergency Economic Powers Act, have comparable “president says there is an emergency” approaches.

None of these laws, of course, envisions a president deliberately bypassing Congress to create a new tax system “by myself.” So there’s room to wonder about whether courts would strike down an attempt to try. If they didn’t — see below for two speculative, but legally-well-informed, short essays on different sides of this question) — the talk of “terminating” at least one important part of the Constitution wouldn’t seem idle.

FURTHER READING

From the National Archives, the Constitution transcript.

Madison’s notes on the August 16, 1787, debate on tariffs and export tax powers.

The Federalist Papers (see #30-#36 for taxation).

Congress explains each clause.

And Customs and Border Protection reports collection of administratively imposed “301” and “232” tariffs.

For the record, here are the Constitution’s four trade policy sentences. All are “Article I”, on Congressional organization and powers, with two in Section 8’s “enumerated powers” list, and two in Section 9’s “denied powers”:

Section 8: “The Congress shall have Power to lay and collect Taxes, Duties, Imposts, and Excises” and [power] “to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”

Section 9: “No Tax or Duty shall be laid on Articles exported from any State” and “No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another; nor shall Vessels bound to, or from, one State be obliged to enter, clear, or pay Duties in another.”

What if somebody tried?

Do current trade laws abandon or override the “Taxes, Duties, Imposts, and Excises” clause?  Two informed views –

Alan Wolff of the Peterson Institute for International Economics, former Deputy U.S. Trade Representative and long-time trade law practitioner, thinks courts might say no.

Warren Maruyama, former U.S. Trade Representative Office General Counsel and likewise long-time trade law practitioner, joins CSIS’ Bill Reinsch and Lyric Galvin in the other view – courts typically ‘defer’ to Congressional laws delegating powers, and would likely do so again.

Some past Supreme Court practice –

Brig Aurora (1813, involving the seizure of cargo carried on a British merchant ship during the War of 1812).

Field v. Clark (Chicago retail pioneer Marshall Field complaint against Clark, a Harrison administration official in charge of collecting tariffs at the Chicago port, for imposing retaliatory tariffs under an 1890 law).

And a quick Congressional summary of their impact.

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.

Gresser in The Economist: How America learned to love tariffs

Posted on by Max Sherrill

Another justification, which has more credibility among policy types in Washington, DC, is that, if well targeted, tariffs can meet national-security needs. When it recently increased levies on Chinese EVs, semiconductors and solar modules, the Biden administration said that China’s clout in such industries created unacceptable risks for America’s economic security.

America and other countries do have reason to fret about Chinese dominance of critical technologies, not least because of China’s willingness to block exports during international spats. But using tariffs for national-security goals poses problems. Invoking security becomes a convenient excuse for protectionism, as when the Trump administration placed tariffs on steel and aluminium imports from the EU and Japan. Moreover, a tariff is not exactly a robust defence against a true security threat. “If something is really dangerous, you should probably ban it rather than tax it,” says Ed Gresser of the Progressive Policy Institute, a think-tank.

A final defence of tariffs is a more limited version of the first supposed rationale. Rather than saying that tariffs benefit the economy as a whole, advocates say they are needed to support the growth of specific sectors. The Biden administration has, for instance, argued that its new China tariffs are protecting the very sectors that the government has been trying to cultivate through its big investments.

Read more in The Economist.

Pennsylvania Produces 1.5% of All World Energy

Posted on by Max Sherrill

TRADE FACT OF THE WEEK: Pennsylvania produces 1.5% of all world energy.


THE NUMBERS: World energy production, 2022, in BTUs* – 

Area Energy production
World 598 quadrillion BTUs
China 137 quadrillion
U.S.   99 quadrillion
(Texas)   25 quadrillion
(Pennsylvania)   10 quadrillion
(New Mexico)     7 quadrillion
Russia   60 quadrillion
Saudi Arabia   30 quadrillion
India   22 quadrillion
Canada   22 quadrillion
All other 228 quadrillion

* Energy Information Administration. A “BTU” (British Thermal Unit) is the amount of energy needed to raise the temperature of a pound of water by one degree Fahrenheit.

WHAT THEY MEAN:

From the “oil shocks” of the 1970s until recently, energy policy arguments featured mostly moaning, grim charts illustrating the consequences of “energy dependence” on unstable parts of the world, and predictions that things would get worse.  Here’s what’s actually happened, using the year 2003 — 20 years ago — as a point of departure:

Starting point: According to the Energy Information Administration (the Department of Energy’s data and research arm), in 2003, Americans produced 67.3 quadrillion “BTUs” worth of energy, and used 95.8 quadrillion BTUs. This meant Americans bought, on net, about 28.5 quadrillion BTUs from foreigners, mostly in the form of crude oil.  The resulting economy (a) employed 130 million people, (b) produced $11.7 trillion worth of farm products, manufactured goods, movies, government programs, and other goods and services (which, converted to the Bureau of Economic Analysis’ “constant 2017 dollar” figures to allow for meaningful comparisons with today’s economy, would be $14.9 trillion), and (c) released 5.7 billion tons of carbon dioxide.

Since then, two big changes in the energy figures:

More production: Scarcity and price instability produced curiosity about whether we might find more at home.  With heavy deployment of solar panels and wind turbines, drilling for natural gas, and so forth, the BTU count of domestically produced energy has grown from 67.3 quadrillion in 2003 to 91.9 quadrillion in 2020, and 102.8 quadrillion in 2023.  In other words, domestic energy production has jumped by 40% since 2003, and by 10% since 2020.  According to the Bureau of Economic Analysis, Pennsylvania — the site of the world’s first oil well in 1859 — has seen energy income rise like this:

Year Energy Income
2023 $8.1 billion
2019 $5.3 billion
2003 $0.3 billion

 

More Efficiency: Likewise, scarcity and price instability produce caution, efficiency, and savings.  As America’s energy production has grown, use has dropped from 95.8 quadrillion BTUs in 2003 to 93.6 quadrillion in 2023. To put this 2.2 quadrillion BTU drop in perspective, total annual energy “consumption” figures are 10.8 quadrillion BTUs in Brazil, 1.6 quadrillion in Sweden, and 4.9 quadrillion in Taiwan. Carbon dioxide emissions, meanwhile, have dropped by about 25%, from 6 billion tons a year in the mid-2000s to 4.5 billion as of 2023.

Endpoint: As of 2023, the $28 trillion U.S. economy – $22.7 trillion in BEA’s constant 2017 dollars — employed 156 million people. Converting all this into BEA’s inflation-adjusted “constant 2017 dollars,” the 2% decline in energy use, and the accompanying 25% drop in carbon dioxide emissions, have accompanied the following big-picture changes:

2003 2023 Change
‘Real’ GDP $14.9 trillion $22.7 trillion   +52%
Manufacturing   $1.7 trillion   $2.3 trillion   +36%
Mining   $0.16 trillion   $0.34 trillion +111%
Agriculture   $0.14 trillion   $0.19 trillion   +36%
Employment 130 million 156 million +26 million

 

With respect to trade, meanwhile, the “dependence” of the 1970s through 2000s has not totally vanished — Americans still buy lots of crude oil from the Middle East, lots of solar panels from Southeast Asia, and lots of electricity from Canada.  But fundamentally, the world depends on the U.S. to sell energy, not the other way around.  Trade balance data, converted into BTUs, look like this:

Year    US Trade Balance (BTUs)
2023      +9.2 quadrillion BTUs
2020      +3.5 quadrillion BTUs
2010    -21.7 quadrillion BTUs
2000    -24.9 quadrillion BTUs
1980    -12.1 quadrillion BTUs

What can we expect next? Energy trading will likely change sharply in the next decade, as fossil fuel use falls and countries rely more frequently on materials and machines used to generate and convert electricity, and thus use electricity in ways that look like “stocks” than “flows.” Neither renewable technologies like wind turbines nor electrified end-use technologies like heat pumps and batteries, for example, use fuels to operate. So perhaps “trade” will include fewer BTUs overall, and more materials and machines used to generate and convert electricity.  Having surprised everyone by evolving into the world’s top source of energy since 2003, the U.S. now likely needs more powerful domestic clean energy supply chains to stay in the role.

* The “British Thermal Unit,” like the 159-liter/42-gallon “barrel ” of oil, is a defiantly non-metric energy unit.  The BTU and the annual amount of dollar-trading on forex exchanges are the only indexes of human activity measured in quadrillions, and BTUs will likely soon hit the 1 quintillion — 1,000,000,000,000,000,000 — plane. As a comparison, the mass of the moon is about 78 quintillion tons.

FURTHER READING

PPI’s Elan Sykes and Paul Bledsoe on energy and the next American economy.

Gov. Josh Shapiro’s Pennsylvania energy strategy.

Data & rankings

The Energy Information Administration has the basic BTU-as-trade data … and ranks energy output by country.

Note on this: China is the world’s top energy producer, but rankings look different depending on the type.  Of China’s 138 quadrillion BTUs, 106 quadrillion come from coal.  India is the No. 2 coal producer at 17 quadrillion BTU, and Indonesia is third at 12 quadrillion; together with China, this is 80% of world energy from coal. The U.S. however edges China by 15 quadrillion to 14 quadrillion in “nuclear, renewables, and other”; the U.S. is also first in both natural gas at 37 quadrillion BTU (above Russia’s 23 quadrillion and Iran’s 10 quadrillion), and petroleum at 32 quadrillion as against Saudi Arabia’s 25 and Russia’s 23.

… EIA defines the “British Thermal Unit”.

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.

Trade Fact of the Week: Is U.S. income inequality starting to decline?

Posted on by Max Sherrill

FACT: Is U.S. income inequality starting to decline?

THE NUMBERS: U.S. “Gini coefficient” –
Year U.S. Gini coefficient
2023 0.485
2022 0.489
2021 0.494
2020 0.488
WHAT THEY MEAN:

Last week’s Bureau of Economic Analysis calculations report that, since 2020, the U.S. economy has “grown” from $21.3 trillion to about $29.0 trillion this year, with “wages and compensation” making up about half of the total growth. Discounting inflation, the U.S. economy of 2024 is about $3.2 trillion larger than that of 2020, and incomes — workers, executives, farmers, self-employed, etc. — perhaps $2 trillion more. Who is making all this extra money? BEA gives you lots of ways to divide it, but one heartening point: with income inequality diminishing in 2022 and 2023, low-income and “working” families are getting a bit more of it than they were before.

As a point of departure, the “Gini coefficient,” devised by Venetian statistician Corrado Gini in 1912 (see more below on this unlovable person), provides a widely used measure of income equality. The “coefficient” runs from 0.000 to 1.000. At the theoretical 0.000 extreme, every clone-like individual (or every household, depending on what you’re measuring) would make exactly the same amount of money. The other end, 1.000, represents a Pharaoh-like state in which one single person gets every nickel. No country is especially close to either 0 or 1, but the U.S. shows up on the “more unequal” side. World Bank data for high-income countries, for example, finds only Chile and Panama with more “unequal divisions of income.” Here’s a representative sample of countries from their list (using only countries for the Bank has results for 2020 r more recent years), bracketed by Colombia at the “most income-unequal” end of the spectrum and Slovakia as “most equal”:

Country Gini coefficient
Colombia 0.548
Brazil 0.520
Zimbabwe 0.503
Costa Rica 0.467
United States 0.413
China 0.357
Thailand 0.349
Australia 0.343
United Kingdom 0.329
Germany 0.324
India 0.328
Canada 0.317
Denmark 0.283
Netherlands 0.257
Slovakia 0.234

This placing for the U.S. in 2022 reflects the end-point of a longstanding trend, in which American incomes have been growing apart for about five decades. (Or, more precisely, the top end has been stretching up, relative especially to the bottom tiers.) Census records, which use a different approach than the Bank’s but find similar outcomes, put America’s Gini coefficient at 0.397 in 1967, then a slightly higher 0.403 in 1980, 0.462 in 2000, 0.481 in 2016, and 0.494 in 2021. In more real-world terms (with numbers adjusted for inflation), here’s how the Census sees family incomes changing from 2000 to 2021:

Income Group Income 2020 Income 2021 Growth
Top 20% $237,300 $301,600 +27.1%
4th “quintile” $109,500 $129,300 +18.1%
Middle “quintile”   $70,430   $79,830 +13.3%
2nd “quintile”   $42,490   $45,940 +8.1%
Lowest 20%   $16,940   $16,640 -1.8%

Obviously, bare income data blurs some important points and conceals others altogether. Census uses “pre-tax income”; were they to add health insurance subsidies, student aid, nutrition programs, and so on, inequality and income measurements would look somewhat different, and the second and first “quintiles,” in particular, would fare better. Likewise, the quintiles of 2000 aren’t the same as those of 2023: a larger share of lowest-20% families, for example, may be recent immigrants expecting better things soon. But this noted, the patterns do suggest that (a) America’s affluent families gained ground faster in the century’s first two decades than the middle class, and the middle class faster than working families and the poor; and (b) inflation and rising housing prices (and taxation of clothes, spoons, and life necessities) hit lower-quintile families hardest.

Returning now to the most recent BEA and Census income and equality data, the record since the COVID-19 pandemic, and over the Biden/Harris administration’s first three years, looks strikingly better.

Census published its income figures for 2023 last month. They show the national “Gini coefficient” peaking at 0.494 in 2021, then falling to 0.489 in 2022 and 0.485 in 2023 — still high in historic terms, but the lowest figure since 2017. Meanwhile, the bottom three quintiles’ share of national income rose from 24.8% in 2021 to 25.5% in 2023, while the top 5%’s share fell from 52.7% to 51.9%. Taking this from percentages to actual income, in 2023 families earned about $17 trillion (including wages and salaries, plus pension payments, investment earnings, rental properties and farm incomes). Assuming shifting income distribution doesn’t change the totals, moving 1% of this $17 trillion from the wealthiest 5% to the bottom 60% means an additional $170 billion for the 83 million American middle- and low-income households, or an average of $2,000 each.

FURTHER READING

At home – 

Census on incomes, equality and inequality:

BEA tallies U.S. GDP, growth, incomes, and more.

International comparisons – 

The International Monetary Fund’s World Economic Outlook database (note updates coming in a couple of weeks) has growth, GDP size, and lots more for the world, regions, and countries.

The World Bank’s table comparing income inequality across countries, with (generalizing a bit) Latin America and southern Africa as the world’s least equal regions, and central and northern Europe most equal:

Background and more comparisons from Our World in Data:

And more on Corrado Gini –   

Dr. Gini, though a pioneer of modern statistics, was also a sinister political nitwit. Head of the International Statistical Society in the 1920s, Gini also moonlighted as president of the Italian Eugenics Society, believed the “reproductive instinct” was in long-term decline, and as an enthusiastic Mussolini supporter wrote tracts such as the English-language article The Scientific Basis of Fascism. Later on he changed his mind and adopted a totally different view of the world, proposing in 1944 that the United States annex all the other countries and form a world government. A bio.

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.