If you happen to be in need of a new toaster, you could pop over to Home Depot later today and pick one up for less than $30—or less than $50 if you're looking for a fancier design or the ability to brown more than two slices of bread at once.
That's great. Cheap, abundant kitchen appliances are one of the truly wonderful things about modern America, and they are possible because we can take advantage of global trade and the efficiencies made possible by outsourcing low-level manufacturing. As a result, most Americans can afford to replace their toaster without a second thought, since $30 is roughly the average wage for an hour of work right now.
Writing in The Atlantic, however, Oren Cass argues that the country would be better off if those markets were a little less efficient. What if a new toaster that was made in America costs $32 instead of $30 for a foreign-made one, he argues. Wouldn't that make workers better off?
He's wrong and that $32 toaster won't exist, but it's worth walking through the argument to see why.
Start with that $30 toaster made overseas. Now, slap a 10 percent tariff on it, so that consumers must pay $33 to buy it. That means the Treasury Department collects $3 in new revenue, but it also means that domestic toaster-makers can sell their wares for $32 and undercut the imported models.
If tariffs cause consumers to switch to those domestic-made toasters, Cass acknowledges that consumers are out two bucks. This is what economists call a "deadweight loss" and it's one of the major reasons why tariffs harm the economy.
Cass, the head of American Compass and a prominent proponent of the conservative moment's shift toward central planning, wants to focus on the benefits of those higher prices. "The share of the $32 purchase price that would once have gone to a Chinese factory and its workers now goes to an American firm and its workers instead," he argues. "It pays American taxes and supports American families in American communities."
All of that for just $2 more. Wow, what a great deal!
Unfortunately, Cass is wrong about the math and wrong about the underlying economics.
Tariffs can, of course, be used to make foreign-produced goods (like toasters) more expensive. That doesn't mean that manufacturing firms will radically redesign their supply chains to produce more toasters in the United States. And if they did do that, those new toasters wouldn't cost a mere $2 more than the ones available at Home Depot now. Cass is making several wild logical leaps here, and offers no evidence to substantiate this claim of a hypothetical $32 American-made toaster.
How much would that toaster actually cost? More than $250.
That's the figure offered by Ed Gresser, the former assistant U.S. Trade representative who is currently the director of trade and global markets for the Progressive Policy Institute (PPI). Unlike Cass, Gresser understands how tariffs and trade work.
More importantly, he also shows his work. Because there are no kitchen appliance manufacturers making toasters in the United States right now, he examined the prices of toasters made in other wealthy, western countries like Italy, Japan, and the United Kingdom. At the lowest end, those toasters cost the equivalent of $250, and some would be significantly pricier.
"In sum, 'developed' high-income countries do make home toasters. But they are profitable at prices about ten times those you'd find in mainstream U.S. retail outlets.," writes Gresser. "So to achieve Vance's apparent goal, mainstream toaster prices would probably have to rise to Neiman Marcus levels, say $300 each."
Gresser goes on to discuss how those changes would impact family budgets, employment, and other aspects of the economy. None of it is good.
(The rest of Cass' essay in The Atlantic is riddled with similar gaps in logic and economic fallacies—and don't miss Dominic Pino's takedown at National Review if you want a more thorough debunking of it all.)
But rather than dwell on the math, it might be more important to ask whether America and its workers would be better off in an economy where a basic kitchen appliance was suddenly 10 times more expensive. Clearly, Cass believes this would be an improvement—just think of all the extra money flowing to those American firms that pay American taxes and employ American workers and so on!
But in that alternate reality, there would be far more toaster-buying consumers than toaster-making workers—and the consumers would be far worse off. Indeed, the workers would be worse off too, since they become consumers as soon as they clock out for the day.
In reality, this hypothetical would never materialize because few people would choose to buy those $300 toasters when a $30 toaster made somewhere else does the job just as well. As I covered in this month's issue of Reason (the article is still paywalled if you're not a subscriber), most consumers have little appetite for higher-priced goods even if those higher prices will help to support American manufacturing:
"Earlier this year, the Cato Institute polled consumers to ask if they'd support a tariff on imported blue jeans in order to increase blue jeans manufacturing jobs in America. About 62 percent of respondents said yes.
But hold on. When told that the tariff would make jeans just $10 more expensive at the store, support for that policy flipped: Now, 66 percent opposed it. And if the tariff would make jeans $25 more expensive, an overwhelming 88 percent said no."
Now, imagine what would happen if you told them that the price of jeans would have to increase tenfold, as would be the case with toasters. I suspect that Cass—and Sen. J.D. Vance (R–Ohio), who is making a version of this same argument on the campaign trail—is relying on faulty math and bad economics because he's aware that the real numbers would be unpalatable to just about everyone.
The post How Much Would an American-Made Toaster Actually Cost? appeared first on Reason.com.
