The Fight about Free Trade

Who pays the price for increased tariffs and the decline in trade freedom?

By Thomas Mayhew, Hannah Mayhew, and Lynn MacDonald

import tariffs from 10 to 50 percent on a variety of goods, covering $250 billion in goods from China, with plans for future tariffs that would affect approximately $300 billion in more goods. Following the tariffs imposed by the U.S., retaliatory tariffs have been imposed by China, Canada, the European Union, and Mexico.

Recently, there have been bipartisan calls to “Buy American.” Current economic conditions consisting of higher inflation, worker shortages, and supply chain disruptions have seemingly led policymakers and others to question the benefits of free trade agreements. According to the 2022 Index of Economic Freedom, trade freedom has declined. Trade freedom measures the degree to which businesses and individuals can buy and sell internationally without government restrictions. Out of 177 countries that were included, 98 countries experienced a decline in trade freedom, including the United States.

U.S. Free Trade Agreements (FTAs) tend to share several characteristics, including reducing or eliminating tariffs on imported and exported goods and offering stronger intellectual property protection. U.S. FTAs are adopted to help remove barriers that would otherwise hinder transactions between U.S. businesses and firms in FTA-participating countries. These agreements have a substantial impact on the U.S. economy. According to the Bureau of Economic Analysis, in 2022, imports to the United States totaled $3.9 trillion and exports totaled $3 trillion. Since 2018, the U.S. has initiated several significant changes to its trade policies. It has imposed

Considering these changes in trade policy, a team of economists led by Harvard Business School associate professor Alberto Cavallo analyzed U.S. prices for imports to investigate who ends up paying the tariffs. Their findings indicate “the price incidence of U.S. import tariffs falls largely on the United States.” As a result of the tariffs placed on Chinese imports, the U.S. is paying more for these imported goods. The same research found that many U.S. retailers “are absorbing a significant share of the increase in the cost of affected imports” by reducing their profit margins on those goods. These changes in policy are also harmful to Chinese exporters, as the higher price will lead to a reduction in the number of units produced by Chinese firms, which then limits the amount made available to consumers.

While consumers may feel the impact that tariffs have on the final goods that they purchase in the store, perhaps even more important to the global economy is the impact of tariffs on intermediate goods used to produce those final goods. Intermediate goods are goods that are used in the production of other goods. Economists Robert Johnson and Guillermo Noguera estimate that intermediate inputs now comprise as much as twothirds of world trade, with many of these transactions taking place within global supply chains.

Considering the importance of global supply chains in the trade of intermediate goods, researchers Gene Grossman and Elhanan Helpman analyzed how those supply chains have been impacted in the wake of increased tariffs. They find that, in the case of large tariffs, producers of final goods may be forced to search for different suppliers of inputs if the resulting tariff makes the cost of doing business too high. They conclude that costs and inefficiencies associated with searching for new suppliers become a component of the price increase from the resulting tariff.

While changes in trade policy are both complex and dynamic, in the short-term, the reduction in free trade is contributing to higher prices as well as supply chain disruptions. The long-term impact of the tariffs presently in place is murky, as it will depend on how trade policy evolves and the extent to which countries enter into or maintain free trade agreements. Business and consumer reactions to price changes and international trade will also play a key role.

Residential Building Permits

ECONOMIC INDICATORS & TRENDS

TOTAL: $5,312,084

Compiled by Shelly Imdieke, St. Cloud Area Chamber of Commerce

Commercial Building Permits

TOTAL: $9,445,917

Unemployment Rates

TOTAL: $215,772,443

Non-Farm Jobs

$153,245,951

Housing/Real Estate sources: St. Cloud Area Association of Realtors, http://stcloudrealtors.com/pages/statistics.

120 TOTAL: 2010 TOTAL: $1,587,656

1569

Source: Tax Collections – City of St. Cloud

TOTAL: NOT REPORTED TOTAL: $1,420,811

Class of 2023

As another school year draws to a close, the repeated refrain of ‘what are you going to do when you graduate’ is echoing in hallways and at graduation parties around the United States. Whether it’s college or not, four year or two year, in state or out of state – it all varies. Here’s a snapshot of what Minnesota high school graduates are doing:

83% the high school graduation rate for the class of 2021 in Minnesota

70% the percentage of Minnesota high school graduates who will enroll in some kind of postsecondary institution in the fall following graduation

28% the percentage of college-bound Minnesota high school graduates who attend college outside of Minnesota

50%+ the percentage of high school graduates choosing to attend college in Minnesota, who are going to a four-year school

Source: Minnesota Office of Higher Education