Tariffs create the wrong jobs

Should the US really be making T-shirts and shoes?

- MIHIR S SHARMA

It is now abundantly clear that United States (US) President Donald Trump does indeed believe that a higher baseline of tariffs is necessary for his country's success. They may not reach the exalted heights that he threatened in his famous press conference in early April, when he held up a chart with illogical and inexplicably high tariff rates attached.

Only a fraction of those threats from Mr. Trump have come into effect. But the Yale Budget Lab nevertheless calculates that US consumers now face an overall effective tariff rate of over 20 percent—the highest in more than a century. This will change in the next year or so—pushed upward by the final application of additional tariffs on countries after Mr. Trump's various deadlines for negotiating trade agreements expire, as well as downward when some countries win exemptions and as consumers substitute away from high-tariff imports.

Nevertheless, some trends are already visible in relative prices within the US. While overall price levels have not yet increased as much as expected, consumers are paying almost 40 percent more for certain goods, including many shoes and clothes. These are, of course, largely manufactured outside the US and particularly in developing countries that have been particularly hard hit by Mr. Trump's plans.