How to Judge a Tariff

The de minimis tariff has recently gone up, down, and up.

In the past, inexpensive imports have occupied a tariff sweet spot. Because they generate minimal revenue and huge inconvenience, it made no sense to tax them. As a result, since 1938, cheaper packages had been entering the U.S. duty free. In the beginning, the threshold was $1. Raised several times by the Congress, the no-tax amount–the de minimis threshold– became $800.

Then though, on February 1, the President ended the exemption and also slapped an extra 10% on all Chinese imports.

immediately, however, more than one million low value packages piled up at JFK Airport in NYC. The illogic that had been cited almost 100 years ago when the exemption began became a reality. So, on February 7, a week later, the exemption returned.

Now, the newest rules dictate a 54 percent tariff or a $100 fee per package. They also mandate that carriers must use one of the options on all that they ship. But they can switch once a month.

All of this leaves us with one question. How to consistently judge a shifting tariff landscape? The Yale Budget Lab has some answers.

Judging Tariffs

Trying to perceive the impact of tariffs, we can focus our lens on the big picture and then smaller images. No matter what the tariff, the GDP, household income, and employment will be affected.

We can start with the tariff impact on the GDP growth rate, the price level, real disposable income, and employment. As of May 12, all are down except for the price level:

For some history, we can see that average effective tariff rates are down. (Referring to substitution, they mean the import shares of different countries.) However, the current average 16.4% rate is the highest since 1937:

Next we can look at all households and ask who is hit the hardest. Different for the short-run and long-run, at first tariffs are regressive. Then, over time, when rents and returns to capital sink, the household impact is more even:

Looking even more closely, we can see how different commodities are touched by tariffs. Excerpted from a much longer list, these are the top ten:

And finally, returning to the big picture, we can conclude with a GDP tradeoff between manufacturing and other sectors:

Our Bottom Line: Tradeoffs

As economists, we can always return to the cost of a policy. Defined economically as sacrifice, the cost of a tariff can be measured in dollars and beyond.

My sources and more: For today’s tariff criteria and all graphics, we looked at Yale’s Budget Lab.

Also, please note that our description of the de minimis tariff was in a previous econlife post.