Trump says tariffs will save American factories. History shows otherwise.
WASHINGTON — President Trump is building a wall of tariffs around the domestic economy, attempting to protect American jobs by limiting imports. But a tire factory that opened last year in Richburg, S.C., offers a reminder that globalization is hard to stop.
In 2009, American tire makers persuaded the Obama administration to impose tariffs on Chinese tires, and imports of tires from China fell sharply. But Chinese companies did not stop making tires in response to the tariffs — they simply moved production to other places, including to the United States.
Giti, one of the largest tire makers in China, built the South Carolina factory to make low-cost tires for Walmart. Two other Chinese tire companies are building plants in the neighboring states of Georgia and North Carolina, and a fourth Chinese company acquired a tire factory in Georgia this year.
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Mr. Trump on Monday said the United States would begin imposing tariffs on another $200 billion worth of Chinese goods on Sept. 24, on top of the $50 billion worth of products he previously taxed. The new tariffs hit many of the consumer products that Americans use every day, like food, clothing and electronics, and the president threatened to go even further, saying he is prepared to tax all Chinese imports if Beijing retaliates.
The president also has imposed tariffs on steel and aluminum imports from most foreign countries, and has threatened to tax imports of cars and car parts.
Tariffs are taxes ultimately paid by American consumers, in the form of higher prices. The purpose of a tariff is to raise the price of imports above the price of the domestic alternatives. The bill for this method of protecting domestic jobs is paid disproportionately by lower-income households. And it is often very large.
One study of the Obama tire tariffs found in a single year, 2011, Americans spent an extra $1.1 billion on tires as a result of a tariff that preserved, at most, 1,200 jobs. That is almost $1 million per job, for jobs paying an average of about $40,000.
Steel tariffs imposed in 2002 by President George W. Bush yielded similar results, penalizing not just consumers but companies that use steel to make other products, like construction companies and carmakers. The Dartmouth economist Douglas Irwin estimated 140,000 American workers make steel, while 6.5 million workers make products that include steel.
"If for some reason you said, 'We just want to help steel producers, shareholders, possibly steel workers,' it makes sense," Mr. Irwin said. "If you care about manufacturing employment or the manufacturing sector, it doesn't make sense."
The political counterargument for tariffs is that change is painful. Workers who lose jobs may struggle to find new ones; communities that lose factories may crumble. Mr. Trump has presented tariffs as an effective prophylactic, arguing that import taxes will protect American workers and companies.
But the United States' tire tariffs — and similar efforts by past administrations to tax everything from socks to solar panels — have generally failed to protect existing factories and jobs. The Chinese factories in the Southeast will create new jobs for American workers but, in effect, the tariffs are simply moving jobs from one place to another at a very high price.
The Reagan administration's 1981 deal with Japan to restrict auto imports helped to catalyze the production of Japanese cars in the United States. Honda, an upstart manufacturer assigned a relatively small import quota, arrived first, opening an automobile factory in Marysville, Ohio, in 1982.
One of the few studies on the subject found 19 percent of foreign companies hit with United States tariffs during the 1980s responded by investing in the United States.
While presidents between Ronald Reagan and Mr. Trump imposed fewer trade restrictions, the pattern continued. The Clinton administration restricted imports of Fuji film in 1993. Three years later, the Japanese company opened a plant in Greenwood, S.C.
The tire industry offers a more recent example. The Obama administration imposed tariffs on Chinese car and light-truck tires for three years in September 2009. Chinese imports had surged, and several American factories had closed.
After the tariffs were lifted in late 2012, Chinese imports rebounded. In 2015, the administration imposed a second round of larger tariffs, this time lasting for five years.
Imports of Chinese tires for sale to American consumers fell to 12.3 million in 2017 from 43 million in 2009, according to Modern Tire Dealer, a trade magazine.
Chinese companies avoided the first round of tariffs, which were explicitly temporary, by shifting production to other Asian countries, including Indonesia, Thailand and Vietnam. But in mid-2014, Giti Tire announced plans for a different kind of response — a $560 million tire-making plant in northern South Carolina.
Giti has its headquarters in Singapore but, at the time, it made almost all of its tires at seven Chinese factories, so it was vulnerable to the threat of new tariffs.
The next year, when the Obama administration announced a new round of tariffs on Giti and other Chinese tire makers, the company loudly protested, pointing to its investment plans as evidence of "a sustained and significant commitment to the U.S., with no intention to harm the tire industry in the United States."
The company also enlisted Nikki R. Haley, then the governor of South Carolina, who wrote a letter of protest to the Obama administration defending Giti as a South Carolina employer. Ms. Haley is now Mr. Trump's ambassador to the United Nations.
Other Chinese tire makers followed Giti. Sentury Tire announced plans in 2017 to build a $530 million factory in LaGrange, Ga. Also last year, Triangle Tire announced plans for a $580 million plant in Edgecombe County, N.C. And this year, Qingdao Doublestar bought a controlling stake in South Korean tire maker Kumho, including a factory opened in 2015 in Macon, Ga.
State and local governments in the Southeast have ardently pursued Chinese investment in recent years, but it is far from clear that the Trump administration would welcome an influx of Chinese companies in response to its tariffs.
The administration, which can block foreign investments in the United States that are judged to threaten national security, has taken a particular interest in scrutinizing proposed investments by Chinese companies, although in June it backed away from a proposal to impose broad restrictions on such investments.
Amid rising tensions, Chinese direct investment in the United States declined to $2 billion during the first half of 2018 from $45.6 billion in 2016, according to Rhodium Group, a consultancy. Wanli Tire, another Chinese company, suspended plans in May to build a $1 billion factory in Orangeburg County, S.C.
County officials told The Times and Democrat, a local newspaper, that politics caused the company to delay its plans. The company did not return a call for comment. The county's offices were closed because of Hurricane Florence.
Some economists and corporate executives say the Trump administration's broader trade policies, particularly the decision to impose tariffs on imported steel and aluminum, also may keep companies away. The tariffs have increased the cost of domestic production, and provoked retaliatory restrictions by major trading partners.
Before Mr. Trump imposed the steel and aluminum tariffs, his chief trade adviser, Peter Navarro, said other countries would not retaliate. "They know they're cheating us, and all we're doing is standing up for ourselves," Mr. Navarro told Fox News.
Instead, irate policymakers in the European Union slapped tariffs on iconic American products, including Kentucky bourbon, Levi's jeans and Harley-Davidson motorcycles. Harley, which ships 40,000 motorcycles from American factories to Europe each year, said in June it would shift production to other countries.
Domestic tire manufacturers who pushed for tariff protections in 2009 and in 2015, said that the industry needs and has benefited from government protection.
Paul Reitz, the chief executive of Titan International, an Illinois company that makes tires for farming equipment and other off-road uses, said the tariffs have helped, even though he said that imports have climbed to 40 percent of the off-road tire market from 20 percent of the market since 2009.
Indeed, he said he would like the Trump administration to increase the tariffs on tires. Tariffs allow him to charge higher prices and to earn larger profits. "I'd much rather be putting it into investment than to be giving it away to fight off foreign competitors," he said.
But Mr. Reitz does not like the tariffs on steel, which the company uses to reinforce tires and to make wheels. And he does not like the escalation of trade tensions with China, which is spooking the farmers who are the primary buyers of his tires and whose exports are particularly exposed to retaliation by the Chinese.
"It's created a lot of uncertainty with our cost structure and our customers," Mr. Reitz said. "We just don't know what the full impact of the tariffs are going to be."