Some Products That Benefit from Protective Tariffs

We live in an era of free trade, except when we don’t. The recent furor over trade deals between the U.S. and China and between the U.S. and the rest of the Americas made it appear that the U.S. went all-in on free trade until Donald J. Trump became president. The reality is, there have always been plenty of exceptions to free trade. Furthermore, protective barriers like tariffs may harm some industries or companies while benefitting others.

Key Takeaways

• Paper clip manufacturers successfully argued that Chinese rivals were dumping cheap substitutes on the market.
• American tuna producers use cheap foreign labor but still exploit a loophole to evade tariffs.
• The U.S. tobacco industry has been protected by tariffs since the Great Depression.

Generally, these tariffs are intended to protect critical American industries from foreign competition or to prevent dumping of cheap goods in the U.S. by foreign manufacturers, or both.

Paper Clips

Most paper clips sold in the U.S. are still manufactured domestically, largely due to a 127% tariff on Chinese-manufactured paper clips. The tariff has been in effect since the 1990s when American paper clip manufacturers started facing tough competition from cheaper-priced Chinese imports. The manufacturers successfully argued that their Chinese rivals were “dumping” paper clips on the American market, meaning they were selling at a loss in order to drive domestic manufacturers out of business.

Canned Tuna

The tuna industry is subject to a complex array of import quotas, tariffs, and quality standards, which has led to some creative workarounds.

For example, canned tuna manufactured and sold in the U.S. is protected by a 35% tariff against Ecuador’s cannery imports, which has been in place since 2002. However, American canned tuna manufacturers outsource the cleaning of the fish to countries with cheap labor and then ship it back for domestic operations in California and Georgia to package the final product.

This takes advantage of a loophole that deems the product to be domestically produced if it is packaged in the U.S.

Tobacco

Tobacco is big business in the U.S., and American tariffs have protected the industry since the Great Depression. Some tobacco products imported into the U.S. face taxes as high as 350%.

However, tariffs go two ways. In 2018, in retaliation for U.S. trade policies, China announced a 25% increase in its tariffs on a list of 100 U.S. products, including cigars and cigarettes.

That was not welcome news in North Carolina, which exported more than $156 million in tobacco products to China in 2017.

Sneakers

Sneakers produced by New Balance, the last large shoemaker to have its entire production process in the U.S., are protected by a 20% tariff on foreign shoe imports.

Important

New Balance is the last big shoemaker to make its product in the U.S.

This is part of the reason why other major brands such as Nike and Adidas have higher prices. Since they create many of their final products outside the U.S., they pay the tariff that protects domestic suppliers such as New Balance, and they pass those costs through to the customer.

Why Are Some Products, like Paper Clips and Sneakers, Protected by Tariffs?

Products like paper clips and sneakers are protected by tariffs to shield American manufacturers from being undercut by cheaper foreign imports, especially when those imports are sold at a loss (known as “dumping”).

How Do Tariffs Affect the Prices of Products for U.S. Consumers?

Tariffs typically increase the price of imported goods, which can lead to higher prices for consumers. For example, U.S. consumers may pay more for products like sneakers and paper clips because the tariffs raise the cost of foreign-made goods, making domestic options relatively more affordable.

How Do Trade Wars and Retaliatory Tariffs impact U.S. businesses and industries?

Trade wars and retaliatory tariffs can create uncertainty for businesses that rely on international trade. For example, when the U.S. imposes tariffs, other countries may retaliate by increasing tariffs on U.S. products. This can hurt American exporters and disrupt supply chains, impacting industries such as tobacco, agriculture, and manufacturing.

The Bottom Line

Protective tariffs can provide critical support for U.S. industries by shielding them from unfair foreign competition, such as price dumping. However, while they help domestic manufacturers, they can also increase consumer prices and lead to trade tensions. The balance between protectionism and free trade remains a key issue in global commerce.