We need a broader debate on the role of tariffs

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The usual debate on tariffs starts with the declaration that tariffs are simply taxes on goods imported into the U.S. that will be passed on, in whole or part, to consumers who will foot the bill.

What these “free trade” advocates for globalization too often resist in acknowledging is the biased structure of the global economy and how different countries have exploited it to undercut American businesses, the wages and working conditions of American workers, and the environmental standards that our country started enforcing in the 1960s and ‘70s with the Clean Air Act and the Environmental Protection Agency.

When I first taught classes on globalization and sustainability at the Carlson School of Management at the University of Minnesota 22 years ago, I cited an example reported in the New York Times about how the toy manufacturing company, Ohio Art, which produced the Etch-a-Sketch, had shifted its production from Bryan, Ohio, to China in 2000. At the time Ohio Art was a unionized company whose employees were represented by PACE, which later merged with the United Steelworkers. They were paid $9 an hour in wages, were provided health insurance by the company, and also were provided a pension.

The Times reported that the driving force behind the company’s decision to close the Ohio plant and relocate to China was the insistence by Walmart and Toys ‘R’ Us insistence that they didn’t want to sell toys that cost more than $10 a piece. What was most shocking about this decision was what the company did in China to meet this target.

The legal low wages paid in China were not sufficient. Instead, the Etch-a-Sketch contractor broke the minimum wage laws in China paying only 24 cents an hour, 30% below the Chinese minimum wage, and it required employees, illegally under Chinese law, to work 84 hours a week without overtime pay.

However, the global trade regime at that time, administered by the World Trade Organization, a product of both Republican and Democratic administrations, provided no mechanism to respond to trade activities that undermined a country’s wage and benefit standards or its environmental regulations. Etch-a-Sketch and Walmart faced no penalty for breaking China’s labor laws, nor for undermining America’s.

As a result of decades of this lack of linkage between the social values of a country or their enforcement, the current trade system has undermined American labor laws, hollowed out our manufacturing communities, and transformed the environmental laws that cleaned up our air and water into penalties for well-run companies.

What is missing from both the Trump administration’s implementation of tariffs and from most Democrats criticism is their failure to link tariffs to the labor, human rights and environmental standards that all companies should be required to meet in order to trade with other countries. Instead, President Donald Trump has vilified unions and illegally suppressed the rights of federal workers. Trump’s adviser Elon Musk has a long history of illegal suppression of his own employees to form a union at Tesla.

Americans should welcome the current debate about tariffs as a way to open the door to discuss how they actually should be structured and enforced with a primary focus on the rights and well-being of working Americans and their communities.

The second major discussion should be around the allocation of tariff revenues. The current administration has fancifully projected that tariffs will displace our income taxes. Nothing could be further from the truth. Take for example the Section 232 tariffs on steel that were initiated in 2018 and extended by the Biden administration. The report on their revenue issued by the ITC in 2023 documented that they raised between $1.5 billion to $2.5 billion each year, hardly a staggering amount. This money provided no support for the industry, its employees, or to the communities that had been devastated by the trade imbalances of the last 40 years. It simply went into the Treasury Department’s general revenues.

Instead, Americans should design a new industrial policy to support American manufacturing by investing tariff revenues in the next generation of technologies and their communities that will create well-paying jobs in the U.S. while meeting our environmental standards. In the last Congress, Republican Sen. Bill Cassidy from Louisiana and Democratic Sen. Tammy Baldwin from Wisconsin co-sponsored the Resilient Communities Act, which directed tariff revenues to support economic development in trade-impacted communities.

This should be our vision for the future to undo what a laid-off iron ore miner in Minnesota once told me: “They are shipping our jobs to China and bringing the pollution back.”

David Foster is a former faculty member at Carlson School of Management and a former District 11 director for United Steelworkers.