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After tariffs on Chinese car and light truck tires went up in 2009, so too did rental tire sales. Since the tariffs made tires more expensive, consumers that could no longer afford them needed a cheaper alternative. The problem though was the cheaper choice was really more expensive. Adding together all of the monthly rental payments and the interest that was due, the total was more than four tires would have cost.
The good news is that the tariff saved 1200 jobs. But, including rental tires (perhaps), each of those jobs cost consumers $926,500 a year. The Peterson Institute did the math:
From: Peterson Institute for International Economics “U.S. Tire Tariffs: Saving Few Jobs at High Cost”
Fortifying their argument for free trade, Peterson went on to estimate that the extra money spent on tires meant less spending and fewer jobs elsewhere. Consequently, as many as 2,531 retail jobs might have evaporated.
Similarly, way back in 2002, the Dallas Fed published the following data to prove “the high cost of protection:”
But a recent study has made all of this more complicated.
Where are we going? To the cost that some workers pay for freer trade with China.
The Impact of Freer Trade With China
Yes, economists agree that free trade is beneficial. However, it is more complex than we think because the cost to the low skilled worker is considerable. Because of Chinese imports, certain U.S. regions have experienced higher unemployment and lower lifetime wages and labor force participation rates. Furthermore, since worker migration to other industries has been less than the experts expected, demand for unemployment, disability and retirement benefits accelerated.
Our Bottom Line: Comparative Advantage
First explained by 19th century economist David Ricardo as the principle of comparative advantage, when nations do what they do best, specialization boosts worldwide productivity. The big picture confirms that comparative advantage makes sense.
However, as many U.S. apparel and furniture workers would tell us, everyone does not necessarily benefit.
Please note that this post was edited after publication.
