U.S., China & Punitive Tariffs: Why Those Jobs Ain’t Coming Back

May 24, 2011

Okay, I’ve rambled ad nauseum on this topic for years. Whenever an American politician hoping to earn some anti-China/populist cred with the public before an election talks up how great a generalized tariff on Chinese imports would be, I try to point out how utterly ridiculous that idea is.

Most of the time, though, I just have common sense on my side. But in today’s Washington Post, there’s an article that actually shows what might happen when tariffs are applied.

The business sector is wood furniture. In 2005, the US Commerce Department imposed tariffs on beds, nightstands, and related furniture. The idea, of course, was to provide relief to US domestic manufacturers that were suffering from low-cost foreign competition.

What happened next? The Post uses the example of Lawrence Yen, a manufacturer from Southern China who ships furniture to the U.S. His China factory used to send 400 containers to the US each month, but now, it’s down to 60 per month.

So problem solved, right? Not so fast:

Yen opened a factory in Vietnam and began exporting to the United States from there. Others did the same. He is now building a big plant in Indonesia and hopes to sell even more to the United States.

America’s own furniture industry, said Yen, “can never compete with Asia.”

The result: Imports now account for about 70 percent of the U.S. market for beds and similar items, up from 58 percent before Washington intervened to try and protect domestic manufacturers from Chinese “dumping,” or the export of goods at unfairly low prices.

So was this a victory? Well, not for domestic manufacturers. Their slice of the home market continues to shrink, and they still face stiff competition from Asia.

What about China? I suppose if the goal was to hit Chinese exports, then yes, the additional duties did the job. In the long run, though, it doesn’t seem to have bothered folks like Mr. Yen all that much.

How about U.S. jobs? Most of the politicians out there who talk up punitive tariffs say that they are necessary because of manufacturing job loss. But as the furniture example shows, the global economy is like a balloon — poke it on one side, and it will bulge out at another.

In other words, yeah, you might be able to temporarily cut down on Chinese imports by imposing duties. However, that doesn’t necessarily mean those U.S. manufacturing jobs are coming back. That factory in Dongguan probably isn’t going back to Michigan or Ohio; a better bet is Vietnam or Indonesia (or even Western China).

I know a lot of pro-labor folks on the Left who are sympathetic to the punitive tariff scheme. I feel your pain, but assuming that the furniture example applies to other sectors, how do you argue against this reality?

In 2004, before tariffs went into force, China exported $1.2 billion worth of beds and such to the United States. The figure last year was just $691 million.

Over the same period, however, imports of the same goods from Vietnam — where wages and other costs are even lower than in China — have surged, rising from $151 million to $931 million. The loss of jobs in America, meanwhile, only accelerated. The number of Americans now employed making bedroom furniture is less than half what it was when the tariffs began.

Furniture workers in Dongguan, a throbbing industrial city near Hong Kong, earn about $170 a month, compared with less than $80 in Vietnam. Their American counterparts make about $12 an hour.