A Hoosier economics expert says tariffs levied against U.S. trading partners and retaliatory measures that went into effect Friday are setting Indiana up for economic injury.
The administration of President Donald Trump recently levied duties on European aluminum and steel, and on Friday retaliatory tariffs from the European Union went into effect, adding an extra 10 to 50 percent in import taxes on some $3.2 billion worth of products shipped from the U.S. to Europe.
The tariffs affect products ranging from corn to Harley Davidson motorcycles to stainless steel items, according to a 19-page list of the tariffs published by the World Trade Organization.
Their intent, Ball State economist Michael Hicks says, is to hit back in politically sensitive spots — by aiming at industries in areas where the President received a lot of support in the 2016 election.
That includes Indiana, Hicks said by phone Thursday, just before the retaliatory tariffs went into effect.
Two existing tariffs with the biggest impact on Indiana — one on steel imported to the U.S. from other North American countries and Europe, and a retaliatory tariff levied by China on U.S. exports of soybeans and corn — are likely to shave about a quarter of a percent off the state's gross domestic product in 2019, Hicks said. That equates to the loss of 14,000 to 15,000 jobs.
That's because though Indiana does produce steel, more of its economy is tied to using both domestic and imported steel in other products, like automotive parts and orthopedic joints, Hicks explained.
Adding more tariffs on top of what's already in place means the continued health of Indiana's economy is less assured, Hicks said. Already, tariffs in place from both the U.S. and China are offsetting gains that resulted from the Tax Cuts and Jobs Act, Hicks said.
Many of the new tariffs add 25 percent to the cost of exporting U.S. products to buyers in Europe. At that rate, Hicks expects consumption to shift, meaning the market here will be flooded with extra products because less is being sold overseas.
"The real problem, though, is it will affect prices across the board," Hicks said. "We're talking so many products."
Since the U.S. won't have the benefit of trading as much with other countries where certain things are made more cheaply, the cost to make those things is likely to increase, he said.
Companies struggling to pass those increased costs on to the customer may instead make fewer of those items, issue fewer pay increases to workers or turn to automation to offset costs. Some consumer spending formerly directed to goods will likely be spent on services instead, he added.
"The presumption that there's any benefit" to tariffs, Hicks said, "is just outside historical experience.... We're now walking directly into a trade war."
Retaliatory tariffs on U.S. auto exports to Canada have also been threatened. On Friday, the President threatened another tariff, a 20 percent tax on European cars imported to the U.S.
Hicks believes the effects of both the existing tariffs and the new European tariffs that went into effect Friday will be felt by the end of summer. He declared dire results are likely in store should the tariffs remain in place.
"The last time we did this, it helped plunge the entire world into a global depression," Hicks said.
He expects farmers in particular to feel economic injury as a result of the tariffs, since they're unable to change their crop plans at this point.
Reach Sarah Einselen at firstname.lastname@example.org