President Donald Trump has ordered tariffs on aluminum and steel imports and additional tariffs for China in an effort to protect domestic industries. But Northern Illinois University professors say the tariffs will raise consumer costs, reduce availability and cause financial losses for farming and other businesses.
“There is no upside ever to trade restrictions,” said Jens Mueller, ‘89, a College of Business instructor who worked for the Clinton administration and the first Bush administration. “No country ever in the history of the world has become economically or politically successful by restricting cross-border activities.”
The United States imports significantly more than it exports and has a huge deficit as a result. As part of the new economic policy, the Trump administration is calling for China to import more American goods and stop forcing companies to hand over intellectual property when they want to do business there.
Trump’s trade war is aimed at punishing China with tariffs on at least $200 billion worth of goods, while China has threatened to retaliate in kind.
In March, Trump imposed worldwide tariffs of 25 percent on imports of steel and 10 percent on aluminum.
The Trump administration advocates that tariffs on imported steel and aluminum will create more business for domestic industries. The goal is to get the price of these metals to increase domestically as U.S. producers make more steel and aluminum and employ more people. The price hikes are likely to be passed on to consumers.
Bringing back manufacturing through tariffs “is an unsustainable short-term view that will trick American workers to believe that they have careers and futures in industries that only exist because of artificial support from a government,” Mueller said.
In the case of the steel industry, more people might get hired, but the U.S. has not been price-competitive for large-scale production of steel and aluminum for decades, said Ryan James, a professor in the Department of Geography.
Professors cited automobiles, housing, appliances, machinery and aircraft as examples of things that are expected to cost more because of the rise in steel prices. With additional tariffs on other Chinese consumer goods, Americans can expect to pay more for those products and be limited in choices.
A trade war could send us back into a recession, according to NIU professors. High tariffs translate into increased prices for businesses and consumers, financial losses and canceled orders as countries look to others who can provide cheaper goods.
“Uncertainty is a killer of business. It affects investments, future plans to expand, customer relationships, currency values and the perception of American business overseas,” Mueller said.
By creating high tariffs, a country becomes less competitive and the overall quality of its products is reduced in the long run, James said.
The whole economy could be marred since the U.S. will experience reciprocal sanctions from countries affected by the high tariffs, James said, and that is expected to create a ripple effect, extending from international companies to small businesses.
Farmers are already feeling the impact as China retaliates against the U.S., one of the largest exporters of food. China is a large importer of corn, soybeans and pork. However, since early April, Chinese importers have canceled purchases of corn, cut orders of pork and dramatically reduced new soybean purchases.
The U.S. Department of Agriculture reports that Illinois leads the nation in soybean production and is No. 2 in corn production. Data from the National Pork Board shows that Illinois ranks fourth in pork production.
Crops will be sold for less because of a lower demand and a greater supply, said Ursula Sullivan, a marketing professor in the College of Business.
“Soybean and corn cannot be stored easily and cheaply for future use, and thus significant financial losses occur,” Mueller said. “Most farmers depend on annual crop sales and often have pledged expected future incomes against their bank loans. A lost season will almost certainly put some farmers in a position where their banks will demand loan payments for which there is no funding.”
Manufacturing employment peaked in the 1970s. Since then, manufacturing jobs have declined and the U.S. has switched to a service economy, according to the American Institute for Economic Research.
The manufacturing economy “left because it wasn’t competitive,” James said. “And it’s not coming back. Rather, the best thing we can do is invest in the thing that we have — which is our people, our human capital.”
James believes that the focus should be on developing innovative ideas and products, retraining the workforce and funding higher education, local business development and business incubators.
While the U.S. is now a service economy, manufacturing worked well with high wages and unionization, James said.
“We do need to work on providing things such as living wages and benefits so that people can actually afford housing,” he said. “That’s important because owning a home is the capital that people have to reinvest.”
An economy can’t grow without increasing its exports and appealing to foreign investors, according to Mueller.
To improve trade, he recommends that the U.S. create a perception that it is open for business, improve the competitiveness of its firms in global markets and maintain stable relationships with key nations for its exports.
The nation hurt its export markets when it pulled out of the Trans-Pacific Partnership, Mueller said where it had market access to Japan, Australia, Singapore and eight other countries that would have allowed tariff-free sales.
The basic trade theory is that the winners of trade, those who export more, should make enough money that they can use part of their profits to compensate the losers, those who’ve lost their jobs because of trade, said Colin Kuehl, a political science and environmental studies professor.
Trade Adjustment Assistance is a federal program that offers reemployment services, including job training, to workers who’ve lost their jobs or have reduced hours and wages as a result of increased imports. But, Kuehl said more should be done to provide a social safety net.
“We don’t tax the winners as much as we should basically,” he said, “so there’s just not as much funding as we could give.”
To address job losses, the U.S. should be helping industries that give the country a competitive edge, Mueller said, and it should be investing in education, like Germany and other proactive countries contribute to education, especially vocational schools.
Sullivan views artificial intelligence as a bigger threat to the economy since businesses are increasingly using computers instead of people.
As artificial intelligence becomes the standard, she said, businesses will require people with critical thinking skills for data interpretation and will fill jobs in consulting, research, programming and sales, for instance.
Kuehl agrees that technology is causing a high percentage of job losses and says future jobs are in the export industries, where many services are offered and where jobs require educated workers and expertise in technology.