Written by: Nik D.
On June 1st, 2017, the United States imposed 10% tariffs on aluminum and 25% on steel being exported to Europe, and as a retaliatory response, the European Union placed 25% tariffs on European-made clothing being exported to the United States. Recently, the Trump Administration set out to try and “force” companies to produce goods within the United States in hope of a more self-sustaining economy. In order to do this, they placed large tariffs on an aluminum and steel being imported to the United States. In a retaliatory response, the European Union slapped 25% tariffs on jeans, shorts, t-shirts, and synthetic woven trousers being exported to the United States ( a tariff is an extra tax added to a good being exported or imported). Some of these clothing goods are shown on the right. A common output from tariffs is that they change the number of goods being imported or exported). According to Rick Helfenbein, the chief executive/president of the American Apparel and Footwear Association, “‘Made in USA’ apparel... will suffer as a direct result of this action by the Trump administration”. I believe that Helfenbein is on point with the outcome effects of these tariffs, and believe that they are not beneficial for our economy and greatly hurt individual clothing companies.When looking on a smaller scale, these clothing tariffs can be devastating to clothing companies; in specific they affect implicit/explicit costs, profit, as well as the marginal cost/revenue of the companies. The production of the clothing being produced within the United States rather than overseas leads to greater explicit costs. A majority of the increased explicit costs are due to higher wages needed to pay to the workers in the United States. Yes, it is good that the businesses are producing product within our country, but then again they are doing so less efficiently than they would if the product was produced overseas. The increase in wages outweighs the costs of producing within the United States (such as less transportation cost due to no international transportation), so these tariffs are not beneficial whatsoever. The production of the clothing, as well as the material costs, are close to the exact same as they are overseas, so it is the increase in worker wages that is responsible for the greater explicit costs. There will also be an increase in implicit costs because the opportunity cost is larger for producing the items inside the United States (the items would be produced more efficiently overseas and for less of an opportunity cost). Overall, these costs lessen the profits from the clothing companies and hurt the economy in the clothing and textile sector (which has to do more macroeconomics).
These changes in explicit and implicit costs affect the overall profit of the company. Accounting profit (Total revenue - explicit costs) is much less after the tariffs are imposed because, provided that the total revenue stays constant or less than before, there are greater explicit costs, so the money earned (after paying off all of the costs) is less than it would be if it were produced overseas. The same goes for economic profit, however, the difference in economic profit would be greater than the difference in accounting profit for before and after the tariffs were imposed. This is because the implicit and explicit costs are both greater, so when calculating for the economic profit (Total revenue - explicit and implicit costs), there would be more subtracted from the total revenue, in turn making the economic profit much smaller. Furthermore, the profit of the companies will be closer to normal profit due to the difference in the total revenue and the total implicit and explicit costs being close to zero after the tariffs were put into place. When analyzing profit, the further away from the normal profit a company is (when the revenue is greater than costs), the better off the company is doing. Therefore, the companies producing clothing within the United States are less efficient when doing so, proving that the tariffs are not beneficial to the economy.
Marginal costs and revenues also vary when substantial tariffs are placed on a good. The marginal costs are greater after the tariffs are imposed because the cost added by producing one additional piece of clothing is larger (due to larger explicit costs). Also, provided that the total revenue would stay constant and the total quantity of goods would decrease, the marginal revenue would increase. Therefore, the quantity would be greater at the optimal output due to the fact that the marginal revenue and marginal cost are greater than before the tariffs were in place. In the end, even though the tariffs sound good at first, they end up hurting the clothing companies within the United States. The goal of imposing them is to try and get the clothing companies to produce clothing within our country, and it does so, only at the price of increased explicit/implicit costs, less overall revenue, and in turn less profit.
The table above represents countries in the European Union that the United States imported the most clothing from after the tariffs were imposed. Table from https://wits.worldbank.org
