Tariffs

and the Future of the Job Market

Before the Coronavirus, the killing of George Floyd and the “shenanigans” surrounding the current presidential election together eclipsed virtually every other issue, I began a data visualization project examining the comparative benefits and demerits of levying tariffs for the purpose of raising revenue versus protectionism. In this article, I will revisit that project, and share the insights I gained from it.

America and Its Trading Partners:

High Tariff Countries:

Low Tariff Countries:

No Tariff Territory:

After collating the data in Python with the Pandas to create the above tables, I moved to R and used the ggplot2 package to create the visualizations below:

In each of the above graphs, the previous year’s tariff rate is displayed on the x-axis. Examining the left graph, we see that there is no direct correlation between and increase in the tariff rate and the subsequent year’s GDP Growth Rate. Due to the small sample size, and the choice to limit our analysis to a single year, it is difficult to draw any solid conclusions from this. We can infer, however, that an increase in the tariff rate, insofar as it is not drastic, will not likely result in a huge jump or fall in the GDP Growth Rate. This inference is consistent with IMF economists’ findings that these changes wait till the medium term to manifest themselves. Note also that developing countries, such as Mainland China and Kiribati tend to have higher growth rates compared to more developed nations such as the United States, Canada, and Switzerland. This is a manifestation of the fact that are catching up to their more developed counterparts. The case of Iran is unique due to the effects of sanctions against it imposed by the United States and other countries.

Examining the Graph on the right, a clearer picture begins to emerge in which low-to-medium tariff rate countries are shown to generally have higher Per Capita GDPs than their high-tariff counterparts. The direction of this trend seems to indicate each country and territory’s reasons for enacting tariffs. Developed countries with economies that rely more on activities such as retail and financial services tend to have fewer manufacturing-based industries to protect compared with developing countries. In the cases of Macau and Singapore, these locales’ size, lack of natural resources, reliance on trade and emphasis on investing in human capital have been a recipe for their high per capita national incomes. In the case of developed countries such as the United States, with a few notable exceptions — Trump’s protectionist tariffs on Mainland Chinese imports and his threat to levy political tariffs on Mexico to secure border-wall funding — these tariffs have primarily served to generate revenue rather than constrict trade.

The short answer is no…at least not if your goal is to encourage economic activity. Businesses in the developed world have often been derided for outsourcing jobs to developing countries to cash in on cheap labor, but this is not their only option. Automation reduces the per-unit cost of producing goods and services often driving costs even further down than outsourcing, all while keeping jobs domestic. This is evidenced by the fact the Indian car manufacturer Tata has petitioned the Indian government for tariffs to protect it against Chinese competition while Chinese workers wages continue to rise.

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