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Tariffs are a poor form of taxation

Posted on October 30, 2024October 31, 2024 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.

ABOUT ED

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

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

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

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

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

Posted on October 30, 2024 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.

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

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

Posted on October 30, 2024November 4, 2024 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 October 23, 2024October 24, 2024 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.

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

Posted on October 16, 2024December 17, 2024 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.

ABOUT ED

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

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Gresser in The Economist: How America learned to love tariffs

Posted on October 10, 2024November 14, 2024 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 October 9, 2024October 17, 2024 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.

ABOUT ED

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

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

Posted on October 2, 2024October 10, 2024 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%
4^th “quintile”	$109,500	$129,300	+18.1%
Middle “quintile”	$70,430	$79,830	+13.3%
2^nd “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.

ABOUT ED

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

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Trade Fact of the Week: In a hypothetical Trump/Vance economy, a toaster would cost about $300.

Posted on September 25, 2024October 10, 2024 by Max Sherrill

FACT: In a hypothetical Trump/Vance economy, a toaster would cost about $300.

**THE NUMBERS: Toaster prices, September 2024* –**

Model / Range	Made in	Price
Milantoast	Milan	€335
Dualit “Classic”	West Sussex	£170 – £249.99
Mitsubishi Electric TO-ST1-T	Suburbs of Tokyo	$246.68
Neiman Marcus range		$90 – $900
Walmart/Amazon/Target/Costco/Macy’s range		$15 – $40

* PPI surveys for mainstream retailers and Neiman Marcus prices; Amazon for the TO-ST1-T; manufacturer sites for Dualit Classic and Milantoast.

WHAT THEY MEAN:

Here’s Vice Presidential aspirant Senator J.D. Vance in Nevada last July: “We believe that a million cheap knockoff toasters aren’t worth the price of a single U.S. manufacturing job.” The unspoken converse (and as explained below, the more realistic interpretation) is that no toaster price would be too high to shift a single worker into U.S.-based pop-up production. Here’s what this might mean:

Background: If you haven’t recently bought a toaster, mainstream retailers sell them at prices typically between $15 and $40. (We checked Target, Costco, Amazon, Macy’s, and Walmart. You can pay more if you like, of course.) Your purchase won’t be U.S.-made, unless you’re a specialized buyer: kitchen appliance manufacturers do make toasters here, but only big conveyor types for restaurants and hotels. As an example, Holman Star’s factory in Smithville, Tennessee, produces machines in a range from the $1,487 QCS1-350, which browns 350 slices an hour, to the 2,000-slices-per hour Star DT-14 Double Conveyor at $7,273. No U.S. company, though, makes a small home pop-up here.

Overseas Comparisons: Home toaster-making in wealthy “peer” economies, however, is perfectly possible. Firms in the U.K., Italy, and Japan make them now. They’re pricey, though. The U.K.’s Dualit Classic, with a silvery ‘retro’ look drawn from 1950s design, is “hand-built” in West Sussex and sells at prices from £170 for a two-slice model to £249.99 for a 6-slicer. (At $1.31 per pound sterling, this is $250 to $360.) Italy’s Milantoast makes an austere designer-black two-slice pop-up in Milan for €335. ($372, at $1.11 per euro.) And Mitsubishi Electric’s futuristic TO-ST1-T, launched in 2019 and made in two factories outside Tokyo, blends a tea-ceremony-suitable “simple shape and wood grain” look with high-tech programming to provide the precise browning of your choice, preserve the bread’s interior moisture, and offer “fluffy French toast,” “Korean street egg toast,” and DIY options. A connoisseurs’ piece, the TO-ST1-T costs $246.88 and makes one slice at a time, no more. (For purists, yes, it is technically a “bread oven” rather than a pop-up. Close enough, in our opinion.)

In sum, “developed” high-income countries do make home toasters. But they are profitable at prices about ten times those you’d find in mainstream U.S. retail outlets. Looked at another way, the $300 or so you’d pay for a Dualit Classic, Milantoast, or Mitsubishi is at the midpoint of this week’s Neiman Marcus catalog, whose cheapest toaster option is a $90 polka-dotted Kate Spade, and priciest a $900 Dolce & Gabbana “Sicily is My Love,” both produced in China.

So to achieve Vance’s apparent goal, mainstream toaster prices would probably have to rise to Neiman Marcus levels, say $300 each. More generally, we assume he isn’t fixated on toasters specifically, but uses them as one specific example of a more general aspiration for appliance-type products. How would this hypothetical Trump/Vance-world look to families? To workers? And could their tariff ideas deliver it?

Family budgets: The Bureau of Labor Statistics’ most recent “Consumer Expenditure Survey” has family budget data for 2022. That year’s average (mean) U.S. household spent $73,000, including about $20,000 on goods purchases excluding restaurant meals. Small appliances cost them $142, and large appliances $408. That means $550 for appliances, 0.8% of the total budget and 2.5% of the goods-purchase budget.* If appliance prices generally rose to levels typical of the Dualits, Milantoasts, and Mitsubishis, family appliance bills would jump from $550 to about $5,000. That would mean a 25% increase in total U.S. household spending on goods. Few working families could afford that, of course. So home appliances would drop out of their present “easily affordable labor-saving device” range into a “scrimp-and-save luxury” tier. Families would still need some, though, and would presumably scale back their entertainment, education, health, auto repair, and other discretionary choices to buy an occasional vacuum cleaner, microwave, iron, washing machine, microwave, or toaster.

Employment: And what labor impact could we expect? Again by BLS’ estimates, 64,290 Americans, including 36,940 production workers, now work in home appliance manufacturing. The production workers’ average (mean) hourly earnings are $21.42. (The median wage is a nearly identical $21.23.) By comparison, average U.S. hourly production-worker earnings are $30.27 for the whole private sector, $27.96 for all manufacturing, $23.51 in electronics and appliance retail, and $18.91 in hardware retail. So pushing workers out of the toaster sections of appliance and hardware retailers into hypothetical toaster-making assembly lines would likely leave wages a bit better for some, a bit worse for others, and overall about the same.

Trade policy: Whether or not this is a good idea in principle, could the Trump/Vance tariff program — 10% or 20% tariffs on all goods, and 60% tariffs on Chinese-made products – actually do it? Pretty clearly not. The U.S. already charges a 5.3% tariff on pop-up toasters (HTS 85167200). None are made here. So as with a lot of U.S. tariff lines, the toaster tariff’s only effect is somewhat higher prices. To get the spectacular ten-fold price-hike that sustains super-toaster making in Japan, Italy, and the U.K., you’d need a 900% tariff or some equivalent policy. (Or, if you need only a five-fold price jump to make less impressive appliances profitable, 400%.) In fact, the additional Trump/Vance tariffs on metals, wiring, buttons, plastics, and other inputs would make U.S.-based toaster-making — including for currently successful producers like Holman Star — harder, not easier. The differentially higher tariff on Chinese-made popups might push some into Vietnam or the Philippines, or possibly Mexico, but that would be the end of it.

In sum, Vance-world looks very expensive for families, not obviously better for workers, and not realistic anyway.

* For some more specific cases, the BLS says single-parent families, with lower earnings, spent $438 out of $56,240 on appliances, about the same 0.8% share of the budget. BLS’ top-earner families average $322,000 in household income and put $1084 into appliance-shopping out of $167,088 in total spending (maybe getting the Kate Spade or something similar?) for a slightly smaller 0.6% of the family budget.

ABOUT ED

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

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Trade Fact of the Week: “Sometimes countries make big and fateful choices … and sometimes their big and fateful choices go badly wrong.”

Posted on September 18, 2024October 10, 2024 by Max Sherrill

FACT: “Sometimes countries make big and fateful choices … and sometimes their big and fateful choices go badly wrong.”

**THE NUMBERS: U.S. hourly-wage and comparable workers, 2023* –**

Total Employed:	161.0 million
Hourly wages or equivalent	80.5 million
“Industrial” hourly-wage workers**	15.7 million
“Non-industrial” hourly-wage workers	64.8 million

* Bureau of Labor Statistics, full-year averages
** “Industrial” includes 8.9 million manufacturing workers, 5.7 million in construction, 0.3 million in energy and mining, and 0.8 million in agriculture. Top “non-industrial” categories include 12.5 million workers in health and social assistance, 10.9 million in retail, and 7.3 million in restaurants and other food service jobs.

WHAT THEY MEAN:

PPI’s newest report, Trump’s Folly, Harris’ Opportunity: Trade and the Blue-Collar Worker, opens with a warning:

“Sometimes countries make big and fateful choices. … And sometimes big and fateful choices go badly wrong. American isolationism in the 1920s and 1930s helped make World War II possible. The ‘America First Committee’ policies*, had the U.S. adopted them in 1940, might have caused its loss. Hoover’s 1930 tariff hikes, advertised as a way to keep U.S. wages high and jobs at home, provoked retaliations and a deepened economic contraction, leaving exporters bankrupt and workers unemployed. These ideas’ return in 2024 presages a time in which American influence falls abroad, the cost of living soars at home, the U.S. and global economies grow more volatile, and the risks of world politics rise.”

Now as in the past, the best response to bad and dangerous ideas is to reject them and propose good ones instead. As Mr. Trump and Sen. Vance try to re-animate 1920s/1930s isolationism, Vice President Harris is creating a modernized, Roosevelt-like alternative. Starting from the basic conviction that American leadership can make the world safer and better, she affirms core U.S. alliances and support for Ukraine, and directly attacks on Mr. Trump’s neo-Hooverite tariff obsession:

“He wants to impose what is, in effect, a national sales tax on everyday products and basic necessities that we import from other countries. That will devastate Americans. It will mean higher prices on just about every one of your daily needs: a Trump tax on gas, a Trump tax on food, a Trump tax on clothing, a Trump tax on over-the-counter medication. … Donald Trump’s plan would cost a typical family $3,900 a year. At this moment when everyday prices are too high, he will make them even higher.”

Harris’ concise takedown perfectly matches George Orwell’s appeal for clarity and brevity (“use the fewest and shortest words necessary to carry your meaning”) in Politics and the English Language. From a different angle (Bipartisan Infrastructure Act seaport investments), Transportation Secretary Buttigieg does the same in explaining the benefit Americans can draw from opening markets abroad and lowering the costs of trade: “keep prices down, shelves stocked, and American farms and businesses selling their goods around the world.”

What, then, should replace Mr. Trump’s national sales tax? The report — the fourth in PPI’s “Campaign for Working America” series this year, with others on housing, non-college career paths, and competition — assesses the limitations of “Bidenomics”’ honorable-but-not-quite-successful effort to create a “worker-centred” trade policy, and then suggests ways to connect trade policy to blue-collar aspirations and concerns, organized around a “guidepost” and four policy themes. A precis:

Guidepost: Per data from the Bureau of Labor Statistics, about half of last year’s 160 million working Americans were “blue-collar” men and women earning hourly wages or an equivalent type of income. Just under 16 million are “industrial” workers in factories, on construction sites, or in mining or farm work; the other 65 million are “non-industrial” workers in health and caregiving, retail, restaurants and bars, repair shops, bus routes, and similar jobs. A successful policy has to consider the interest of the non-industrial workers as well as the industrials.

Theme 1: Bring home goods prices down by purging junk tariffs. Reduce the cost of living by purging the 11,414-line tariff system of lines — for groceries, for clothes and shoes, for small appliances, and table silverware – which raise prices, discriminate against women and lower-income families, and don’t protect any jobs. The launch for this is the Fletcher/Pettersen Pink Tariffs Study Act introduced by Reps. Lizzie Fletcher and Brittany Pettersen this spring.

Theme 2: Help workers find better jobs by creating more export opportunities. Data from the Census and BEA illustrate the high quality of jobs in exporting firms. As just one example, African American-owned exporting firms average 10 more employees and $10,000 more in payroll per worker than the U.S. business community generally. Here the next president can build on some creative Biden team policy launches — see Secretary Raimondo’s launch of the Global Diversity Exporter Initiative — and combine this with revived Obama-era themes of opening markets, pooling strengths, and building relationships with friends and allies.

Theme 3: Make the right exceptions. President Biden’s “industrial strategy” program is still a work in progress. Its most ambitious projects, in particular the hope to shift the $180 billion U.S. auto industry toward lower-emissions EV production, are still in their early phases. Here, the Biden team’s decision to use tariffs has a reasonable foundation. With China having gotten to mass-market, low-price EV first (after a very large barrage of its own subsidies), U.S. battery and plant factories should have some time to catch up. This probably shouldn’t be permanent but it’s the appropriate type of exception.

Theme 4: Give workers more help. By 2028, all dislocated workers — and long-term unemployed, young people looking to move to a second job, workers with mediocre jobs imagining something better ‚ should be able to design a tailored set of supports that fit their needs, from training, career services, apprenticeships, to temporary wage subsidies for older workers.

More detail on each of these in the report, of course. Returning, though, to the big choice ahead, here’s a final thought on risk and an optimistic close:

“The Trump campaign’s attempted resurrection of isolationism — its resurrection of “America First” political isolationism, its economic Hooverism, its disdain for America’s allies and international leadership — is full of risk. Risk of repeating the awful mistakes of the 1930s, risk of new economic shocks and volatility, risk of conflict as America’s friends are demoralized, and aggressive dictators grow bolder. Once made, such a choice takes decades to undo.

“Vice President Harris is right to reject it. She is right to insist on the centrality of alliances among democracies, right to highlight the costs higher tariffs will impose on families, and right to use her early speeches and September debate victory to explain the risks Trumpism poses on both counts. She can cap this, and underline her own optimism and strength, with a clear and appealing alternative that lowers costs, helps workers find new and better job opportunities, and strengthens security in both personal and national senses. That is the alternative hourly-wage Americans and the nation as a whole need, as their large and fateful choice approaches.”

* The “America First Committee,” founded in 1940, was a group organized to stop the Roosevelt administration from providing “Lend-Lease” military aid to Britain as it fought alone. See below for a book rec.

ABOUT ED

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

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PPI Releases New Report on Trade Policy and Its Impact on Hourly-Wage Workers

Posted on September 18, 2024 by Max Sherrill

WASHINGTON — The Progressive Policy Institute (PPI) today released a new report, “Trump’s Folly, Harris’ Opportunity: Trade and the Hourly-Wage Worker,” authored by Edward Gresser, Vice President and Director for Trade and Global Markets at PPI. This report highlights Vice President Kamala Harris’s strong critique of former President Donald Trump’s tariff increases, points out the harm Trump’s 1930s-style isolationism would impose, and offers ideas for trade policy with particular benefit for hourly-wage workers’ cost of living, job opportunities, and security.

This new publication is the fourth in a series of papers published in PPI’s Campaign for Working America, which was launched earlier this year in partnership with former U.S. Representative Tim Ryan of Ohio. The Campaign aims to develop and test new themes, ideas, and policy proposals that help Democrats and other center-left leaders make a compelling economic offer to working Americans, bridge divides on culturally sensitive issues like immigration and education, and rally public support for the defense of democracy and freedom globally. Other papers cover career paths for non-college workers, housing, and competition.

The report notes that Harris has taken a clear and forceful position against Trump’s trade isolationism in recent speeches and her September debate — an approach quite different and sharper than the softer, “blur-the-difference” tactics Hillary Clinton chose for trade issues in 2016 and the Biden political team adopted in early 2023.

“As Vice President Harris has said, Trump’s proposed tariffs would act as a national sales tax, raising prices on everyday goods like food, fuel, and medicine, which would hit working families the hardest,” said Gresser. “She now has the opportunity to offer an alternative that lowers costs, helps to improve job quality, and strengthens international partnerships.”

The report outlines the risks posed by Trump’s isolationist economic policies, which include higher consumer prices and decreased global influence for the United States. It also offers ideas for a trade policy under Harris with particular though not exclusive attention to blue-collar interests, with one “guidepost” and four themes:

Guidepost: Take the interest of all workers into account, including non-industrial workers worried about rising costs of living, exporting workers, and workers competing against rising competition from China and other producers,

• Theme 1: Cut families’ living costs by purging the U.S. tariff system of outdated but expensive tariffs.

• Theme 2: Improve job opportunities by promoting exports and opening markets.

• Theme 3: Ensuring that tariffs are applied temporarily when justified for emerging or transition industries, as in the case of electric vehicles, but as unusual exceptions with known disadvantages rather than frequent resorts.

• Theme 4: Improve opportunities for all displaced workers to get the services and support they need.

“The Trump campaign’s attempted resurrection of isolationism is full of risk. Vice President Harris is right to reject it. She can underline her own optimism and strength, and Trumpism’s defeatism and risk, with a clear and appealing alternative that lowers costs, helps workers find new and better job opportunities, and strengthens security both for families and for the country,” Gresser concluded.

Read and download the report here.

Trump’s Folly, Harris’ Opportunity: Trade and the Hourly-Wage Worker

Posted on September 18, 2024October 9, 2024 by Max Sherrill

Introduction

Sometimes countries make big and fateful choices, and one is coming soon. Eighty years after the birth of postwar liberal internationalism, with its system of alliances among democracies, trade liberalization, and international law, Donald Trump’s 2024 campaign aims to recreate the policies of Franklin Roosevelt’s isolationist predecessors and opponents.

Lifting the name and ideology of the “America First Committee” — a group organized to oppose military aid for Britain as it fought alone in 1940 — Trump’s program implies rupturing NATO and other core alliances, and ending aid to Ukraine. Matching this political retreat, it attempts to resurrect the economic isolationism Herbert Hoover ran on in 1928, proposing tariffs of 10% or 20% on all goods — energy, cars, peaches, OTC medicine, all the rest — and of 60% on Chinese-made goods.

And sometimes big choices go badly wrong. American isolationism in the 1920s and 1930s helped make World War II possible. The “America First Committee” policies, had the U.S. adopted them in 1940, might have caused its loss. Hoover’s 1930 tariff hikes, advertised as a way to keep U.S. wages high and jobs at home, provoked retaliations and a deepened economic contraction, leaving exporters bankrupt and workers unemployed. These ideas’ return in 2024 presages a time in which American influence falls abroad, the cost of living soars at home, the U.S. and global economies grow more volatile,
and the risks of world politics rise.

The right response to bad and dangerous ideas is to reject them and propose something better. Vice President Harris has made a very good start on this as nominee. Politically she has chosen continuity, underlining the importance of NATO and U.S. alliances generally, and maintaining military aid to Ukraine. Economically, from an August economic speech to the first volley of her September debate victory over Trump, she has replaced the soft, “blur-the-differences” approach Hillary Clinton took in 2016 by opposing President Obama’s Trans-Pacific Partnership and the Biden administration adopted in early 2023 with a direct attack on Trump’s Hooverite tariff obsession. Here’s the speech version, which calmly and precisely explains Trumpism’s cost for working families:

Here, Harris accurately describes Trumpist economic isolationism and connects it to a core public concern. The next step is to offer a choice between Trumpism’s risks and resentments on one hand, and on the other a plan to lower costs for families, strengthen relations with America’s friends, and help workers raise their pay and improve their jobs. To envision what it might
be, keep the basics in mind, assess the places in which “Bidenomics” fell short, and look at a model of the way clear and simple language can help organize thought and policy.

Read the full report.

New PPI Report Highlights Role of Foreign Direct Investment in Revitalizing U.S. Manufacturing Amid Nippon Steel’s Bid for U.S. Steel

Posted on September 12, 2024 by Max Sherrill

WASHINGTON — As the U.S. seeks to bolster its domestic manufacturing, the role of foreign direct investment (FDI) is more critical than ever, particularly from trusted allies. This insight is at the heart of a new report from the Progressive Policy Institute (PPI), titled “The U.S. Wants Manufacturing to Drive Growth. Foreign Friends Can Help.” The report examines the converse of U.S. “friendshoring” in friendly countries: the potential for allied nations like Japan, South Korea, Canada, the UK, and Germany to support U.S. economic growth through investment in sectors ranging from electric vehicles to biopharmaceuticals.

The report, authored by Yuka Hayashi, is the second in a two-part series. The first, “Behind Japan’s U.S. Steel Bid: An Aging, Shrinking Home Market,” provides a fresh perspective on Nippon Steel’s proposed acquisition of U.S. Steel and closely examines the economic realities behind Nippon Steel’s pursuit of the American industrial icon.

The new report highlights how these investments can create high-paying jobs, drive technological innovation, and strengthen America’s position in the global economy. Drawing on examples from states like Ohio, Michigan, and North Carolina, where Japanese companies have built major manufacturing hubs, the study argues that such partnerships are essential to America’s economic future.
“If the U.S. wants to strengthen domestic manufacturing, promoting foreign investment from friendly countries is a smart strategy,” said Hayashi. “Not only does it create good-paying jobs and spur innovation, but it also deepens our economic ties with trusted allies, ensuring that critical industries remain secure.”

The report stresses that the U.S. must be strategic in welcoming investment from allied nations, especially in the context of growing tensions with China. As part of this strategy, the report calls for expanding “friend-shoring” partnerships — moving supply chains to allied nations to ensure resilience and stability.

In light of the Inflation Reduction Act and the CHIPS and Science Act, both passed in 2022, PPI’s report underscores the opportunity for the U.S. to attract even more foreign investment, particularly in green technology and semiconductor manufacturing. It also warns that protectionist policies could deter friendly nations from further investing in the U.S. economy.

Read and download the report here.

###

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

The U.S. Wants Manufacturing to Drive Growth. Foreign Friends Can Help

Posted on September 12, 2024 by Max Sherrill

Introduction

As the world grappled with shortages and soaring prices of energy and food following Russia’s invasion of Ukraine in the spring of 2022, Treasury Secretary Janet Yellen introduced the term “friend-shoring” to describe a new dynamic needed for America’s economic engagement with the world. She called for building and deepening integration among trusted partners to secure supplies of critical raw materials, technologies, and products.

“Let’s do it with countries we know we can count on,” she said in a Washington speech. “Favoring the ‘friend-shoring’ of supply chains to a large number of trusted countries, so we can continue to securely extend market access, will lower the risks to our economy, as well as to our trusted trade partners.”

Yet, when it comes to working with friendly partners seeking to invest in the U.S., Washington’s message has been less than
welcoming. Amid the rise of “America First” economic nationalism, its policies have been inconsistent and muddled, even for companies from the closest allies in Europe and East Asia. Election-year politics have further complicated its stance, casting in doubt the fate of a high-profile pursuit of U.S. Steel by Japan’s top steel maker.

President Biden wants to strengthen American manufacturing. Foreign investors can help speed it up. They have for decades created more jobs, paid higher wages and spent more on factories and equipment than the average U.S. manufacturer. Their spending on research and development has enhanced productivity and accelerated America’s strong innovation.

America’s manufacturing is already starting to benefit as companies from allied nations take up Yellen’s concept and “friend-shore” some of their production to the U.S. Amid growing U.S.-China tensions, South Korea’s LG Energy is building an EV battery plant with Hyundai Motor in Georgia and another with Honda in Ohio, while BMW is adding EV assembly lines to its South Carolina plant. Multi-billion-dollar semiconductor factories are under construction by Samsung in Texas and Taiwan Semiconductor Manufacturing in Arizona.

Yet, after hitting a record $440 billion in 2015, annual flows of foreign direct investment into the U.S. fell sharply — declines economists attribute to technical changes in corporate accounting strategies, as well as a protectionist turn in U.S. trade policy brought by former President Trump.

The pandemic then further lowered inflows. Between 2016 and 2023, the annual value of FDI averaged $256 billion. Investment flows have been helped by Washington’s efforts to bolster green technology and semiconductor manufacturing, but overall fell 28% in 2023 to $145 billion.

With the right set of policies, America can go a long way toward bolstering its domestic economy while strengthening its ties to close allies. To maintain strong alliances, the U.S. must not just talk, but show them it has their back.

Read the full report.

Trade Fact of the Week: Arctic sea ice cover is down by 3.2 million square kilometers — an expanse of water as big as India — since 2000.

Posted on September 11, 2024October 10, 2024 by Max Sherrill

FACT: Arctic sea ice cover is down by 3.2 million square kilometers — an expanse of water as big as India — since 2000.

**THE NUMBERS: Carbon dioxide emissions intensity in 2023, in grams per $1 of GDP* –**

Country	Value
Iran	54
China	42
Russia	36
Saudi Arabia	34
Canada	26
World Total	24
India	23
United States	19
Indonesia	17
Japan	16
European Union	10
United Kingdom	8
Sweden**	5
Ireland**	5
Singapore**	5
Switzerland**	5

Source: EDGAR, the EU’s “Emissions Database for Global Atmospheric Research”
** A 4-way tie for lowest emissions intensity rate among major economies.

WHAT THEY MEAN:

The Arctic sea ice expands and contracts like a lung, growing through autumn and winter to a late-March peak, then shrinking back over the summer to a mid-September “minimum.” The 2024 minimum is likely this week. Reviewing their 46 years of data, the National Snow and Ice Data Center in Colorado concludes that it will be the fourth-smallest on record:

“With the waning of sunlight, the pace of sea ice loss in the Arctic is slowing, and the seasonal minimum is expected in mid-September. While a new record low is highly unlikely, extent at the beginning of September is below many recent years. Both the northern and southern Northwest Passage routes have largely cleared of ice, as has the Northern Sea Route. … Antarctic ice extent is approaching its seasonal maximum and is near last year’s record low. Arctic sea ice extent as of August 31 was 4.55 million square kilometers (1.76 million square miles), fourth lowest in the 46-year passive microwave record for that date.”

NSDIC says Arctic ice cover has contracted by about 10% per decade since the millennium. The cumulative loss of ice, averaged over a full year, comes to 3.2 million square kilometers — a space of water about as big as India — and means ice coverage is down about 40% from the 8 million square kms typical of the 1980s. The ice is also (a) thinner — now mostly 2 to 3 meters from top to seawater, which is about half the 5-meter average Norwegian polar explorer Fridtjof Nansen found on his first-ever Arctic ice transit in 1893 — and (b) younger. In the 1980s, “old” ice four years old or more made up about a third of polar ice volume, and “new” ice less than one year old likewise a third; this decade, about 5% of ice is “old” and 70% “new.”

The diminished polar ice cap is an especially visible reminder that governments and industries have limited time to think and argue. Moving from ice to emissions, statistics from the EU’s EDGAR database — updated Thursday for 2023 emission totals, a day after the NSIDC published its 2024 Arctic minimum estimate — suggest three things. One, worldwide, the “battle” to contain climate change, if “battle” is the right metaphor, is being lost. Two, it’s being lost mostly in large middle-come countries – though carbon emissions from rich countries are now falling, those from China in particular, and also India and some other big countries, more than offset these drops; and three, the “battle” isn’t lost yet. Here’s a summary:

Totals: The number that counts for ice, forests, corals, northern mammals, sea life, arable land, and coastal community safety is the level of greenhouse gases in the atmosphere. Here the annual human contribution continues to rise. In 2000, human carbon dioxide emissions came to 25.2 billion tons. The 2023 total was 39.0 billion tons, meaning annual CO2 emissions are up 50% so far this century. Alternatively, since 2020 (an unusually low year because of the COVID pandemic), carbon emissions are up by 2.9 billion tons, or 8%.

Emission by country: Within this big emissions total, smaller country-by-country shares (based on territorial output) have sharply changed. The “developed” world — the U.S. and Canada; the EU, the U.K., Switzerland, Norway, and Iceland; Japan, Taiwan, and Korea; Israel; Australia and New Zealand — has cut annual carbon dioxide emissions by 2.5 billion tons since 2000. Though they are still far from “net zero,” they are trending down at an accelerating pace. Annual CO2 emissions from the rest of the world, though, are up 16 billion tons, including by 9.6 billion tons in China, 2.0 billion tons in India, and about 4.0 billion tons elsewhere. In sum, the growth of Chinese and middle-income country emissions has far outdistanced the “developed” countries’ reduction.

“Emissions intensity”: Against this overall growth of emissions, trends in emissions “intensity”– that is, the amount of carbon produced per dollar of output — offer some reason for guarded optimism. The United States and Europe have not cut emissions by getting poorer but by growing more efficient. In 2000, Americans produced 38 grams of carbon for each dollar of (real, inflation-adjusted) GDP, and EU countries 21 grams. By 2023, the U.S. was down to 19 grams per dollar, and the EU to 10, and the world’s most carbon-efficient economies suggest that there’s still a lot of room to improve. The U.K. and France are at 8 grams of carbon per dollar, Denmark 6 grams, and Sweden, Ireland, Singapore, and Switzerland set the world standard at 5 grams.

This positive trend isn’t unique to the wealthy world: Chinese emissions intensity is down 44% – from 73 grams per dollar in 2000 to a still-high 42 last year since 2000 — and India’s by 24%. In only three of the top 20 emissions sources — Iran, Saudi Arabia, and Vietnam — has intensity grown since 2000. Here’s a table summarizing emissions from the largest country sources, including total CO2 emissions in 2023, change in this total since 2000, and change in emissions intensity since 2023, with positive trends colored green and negative ones red:

Country	2023 Emissions (billion tons)	Change 2000-2023	Emissions/GDP ratio change since 2000
World	39.0	+13.3 billion tons	-27%
China	13.3	+9.6	-44%
United States	4.7	-1.2	-50%
India	3.0	+2.0	-24%
EU	2.5	-0.9	-52%
Russia	2.0	+0.4	-36%
Japan	0.9	-0.3	-36%
Iran	0.8	+0.4	+10%
Indonesia	0.7	+0.4	-26%
All other	8.1	-0.2	-44%**

* Using EDGAR data released last week. Other estimates, such as those by IEA, differ slightly but not fundamentally.

** Not available in EDGAR; PPI estimate using World Bank GDP data.

Final point: The Ireland/Singapore/Sweden/Switzerland 5-grams-per-dollar intensity standard is much better than any very large emissions source country has achieved. But their diverse economic mix — Ireland and Singapore with lots of high-end manufacturing and big computer servers; Sweden, Switzerland, and Ireland with big farm and livestock sectors; Sweden with its six auto plants; Switzerland and Singapore as services and logistical centers — suggests that bigger countries should be able to match their record. Had the world’s top 8 emissions sources done so, their emissions would have been 5.8 billion tons rather than 28 billion tons last year, and as a group, they would have been 80% of the way to net zero. So, that’s not an impossible goal, or even an unrealistic one. The ice bulletins say clearly that the ‘battle’ isn’t now being won. But it isn’t yet lost.

ABOUT ED

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

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Trade Fact of the Week: Trump-era tariffs raised prices but did not ‘bring manufacturing back’.

Posted on September 4, 2024October 10, 2024 by Max Sherrill

FACT: Trump-era tariffs raised prices but did not ‘bring manufacturing back’.

THE NUMBERS: Manufacturing share of U.S. GDP –

Year	Percentage
2023	10.3%
2020	10.1%
2016	10.9%

WHAT THEY MEAN:

Here’s Vice Presidential candidate Senator J.D. Vance, pitching higher tariffs in late July and saying no price for toasters would be too high. And there was the same Mr. Vance, a week earlier, denouncing high prices and their toll on middle-class family budgets: “Many of the people that I grew up with can’t afford to pay more for groceries, more for gas, more for rent.”

Visionary poets like Walt Whitman can get away with this sort of thing. (Song of Myself, verse 51: “Do I contradict myself? Very well, I contradict myself. (I am large, I contain multitudes.)”.) Politicians struggle. Challenged in a TV interview a few days later, Vance tries hard to have it both ways, with a claim about earlier Trump-era tariffs:

“[M]anufacturing came back and prices went down for American citizens. They went up for the Chinese but went down for our people.”

Is he right? In fact, manufacturing growth slowed down while prices went up. The two main Trump-era tariffs went onto steel and aluminum in March 2018 (“Section 232”), and most Chinese-made goods (“Section 301”) — though toasters were exempted — in three pulses from September 2018 to mid-2019. Overall, this raised average “trade-weighted” U.S. tariff rates from 1.4% to 3.0% as of 2019. Since then, the figure has dropped back to 2.4%, as some purchasing shifted from China to Vietnam and other countries. Here’s the price and output data afterward:

Prices: The U.S. International Trade Commission’s 2023 report on the Trump-era tariffs is the standard source here. It finds prices up for families buying consumer goods and also up for manufacturers, construction firms, and others buying metal. The representative quotes:

Steel and aluminum (pg. 124): “The increase in tariffs on steel and aluminum imports increased the relative price of imports and led consumers of steel and aluminum to increase sourcing from domestic suppliers. This increase in demand for domestic production of steel and aluminum resulted in increases in the price of domestically produced steel and aluminum and the quantity of domestic steel and aluminum production in these industries. However, the higher prices of steel and aluminum translated into higher costs of production inputs for downstream industries. This effect negatively impacted the downstream industries that purchase steel and aluminum because costs increase per unit of production.”

Chinese goods (pg. 145): “[T]he tariffs did not have a significant impact on the price received by Chinese exporters. On the other hand, the elasticity of the importer price with respect to the tariffs is close to one, indicating that importer prices rose about 1 to 1 in response to the tariff increase. This is consistent with the recent work of Amiti et al. (2019), Fajgelbaum et al. (2020), Carvallo et al. (2021), and Jiao et al. (2022), who also largely estimate full pass-through of recent tariff actions from exporters to importers.”

Academic literature, along with reviews by Federal Reserve staff economists, concurs. These generally converge on a finding that the tariffs raised overall U.S. prices in a range of 0.3% to 0.5%, with the highest estimate a bit above 1.0%.

Output: With respect to manufacturing trends afterward, the ITC’s report concludes that (as of 2021) the steel and aluminum tariffs had raised the two metals’ output by about $2.2 billion, and shrunk the output of auto parts, machinery, tools, and other metal-using manufacturers (including household appliances such as toasters) by about $3.5 billion. On net, therefore, an overall slight shrinking of U.S. manufacturing. (They didn’t do a similar estimate of the China tariffs’ impact on consumers and firms buying inputs.)

More broadly, the post-tariff trend has been somewhat slower growth in manufacturing output and employment, though not an overall contraction. The Commerce Department’s Bureau of Economic Analysis, which calculates U.S. GDP stats, reports that in 2017, manufacturing made up $2.1 trillion of a $19.6 trillion American economy — that is, industries making planes, cars, semiconductor chips, frozen meat, refined petroleum, medicines, plastics, etc. accounted for 10.9% of overall output just before the tariffs. By 2019, their $2.2 trillion output was 10.5% of a $2.2 trillion economy; after a sharp drop to 10.0% in 2020 during the COVID pandemic, it rebounded to 10.3% in 2023 ($2.29 trillion of a $22.38 trillion economy). So manufacturing continued to grow, but makes up a somewhat smaller part of the U.S. economy than before the Trump-era tariffs.

Alternatively, in terms of “real,” inflation-adjusted growth, U.S. manufacturing grew by $33.5 billion on average per year during the Obama presidency, measuring from the financial crisis low of 2009 to 2017. Since 2018 it has grown by $30.2 billion per year, again slightly more slowly after the tariffs than before.

Employment: The employment story is similar – a slowdown in net manufacturing job creation, and a somewhat smaller share of total employment. According to the Bureau of Labor Statistics, in July of 2017, manufacturers employed 12.5 million of 146.8 working Americans, or 8.5% of all jobs. As of July 2024, the figure is 13.0 million of 158.7 million jobs, or 8.2%. Alternatively, again looking back to the Obama era, from the financial crisis low in mid-2009 to mid-2017, manufacturers added a net of 795,000 jobs. This was an average net gain of 99,500 jobs per year. Since mid-2017, they’ve added another 480,000, for 68,600 jobs per year. Or, in terms of wages, BLS’ stats find manufacturing workers earning about 27 cents more per hour than the national average in 2017 (a 1.0% advantage), and 29 cents per hour less (a 1.0% disadvantage) by 2021.

So: A lot goes into these big numbers – economic shocks and booms, career choices of young workers, innovation and adaptation of new technologies, etc. But the overall data from BEA and BLS make ITC’s conclusion that the 2018/19 tariffs raised prices and slightly shrank U.S. manufacturing look pretty strong. Vance’s backward-looking claims of ‘lower prices’ and ‘coming back’ don’t hold up. You can, however, be pretty confident about his promise that with an added tariff of 10% or 20%, toasters – along with other home appliances, groceries, gas, TV sets, refrigerators, cars, medicine, toothpaste, and consumer goods generally – will cost more.

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

Tariffs are a poor form of taxation

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

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

WHAT THEY MEAN:

FURTHER READING

ABOUT ED

Introduction

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 –

WHAT THEY MEAN:

FURTHER READING

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

WHAT THEY MEAN:

FURTHER READING

ABOUT ED

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

WHAT THEY MEAN:

FURTHER READING

ABOUT ED

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

THE NUMBERS: U.S. “Gini coefficient” –

WHAT THEY MEAN:

FURTHER READING

ABOUT ED

FACT: In a hypothetical Trump/Vance economy, a toaster would cost about $300.

THE NUMBERS: Toaster prices, September 2024* –

WHAT THEY MEAN:

FURTHER READING

ABOUT ED

FACT: “Sometimes countries make big and fateful choices … and sometimes their big and fateful choices go badly wrong.”

THE NUMBERS: U.S. hourly-wage and comparable workers, 2023* –

WHAT THEY MEAN:

FURTHER READING

ABOUT ED

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Introduction

Read the full report.

Introduction

FACT: Arctic sea ice cover is down by 3.2 million square kilometers — an expanse of water as big as India — since 2000.

THE NUMBERS: Carbon dioxide emissions intensity in 2023, in grams per $1 of GDP* –

WHAT THEY MEAN:

FURTHER READING

ABOUT ED

FACT: Trump-era tariffs raised prices but did not ‘bring manufacturing back’.

THE NUMBERS: Manufacturing share of U.S. GDP –

WHAT THEY MEAN:

FURTHER READING

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

**THE NUMBERS: Toaster prices, September 2024* –**

**THE NUMBERS: U.S. hourly-wage and comparable workers, 2023* –**

**THE NUMBERS: Carbon dioxide emissions intensity in 2023, in grams per $1 of GDP* –**