The Hidden Cost of Tariffs: Our Diets

This week I had the fun and privilege of hearing lectures from George Mason University’s Don Boudreaux and former Texas Senator and economist, Phil Gramm—two of the world’s best international trade economists. In their new book, The Triumph of Economic Freedom: Debunking the Seven Great Myths of American Capitalism, they discuss the harmful effects of tariffs and regulations on consumers during the late 19th and early 20th centuries.

A recent report by the Tax Foundation found that the U.S. imported $224 billion worth of food products last year, and higher tariffs on food imports will likely result in higher prices for U.S. consumers in the future. These foods include baked goods, coffee, bananas, vegetables, fish, and beef.

Since February 2020, food prices have risen 29% for a variety of reasons, including the war in Ukraine, bird flu, and worker shortages—in addition to tariffs.

But bringing food production home to the U.S. will not solve the problem—coffee and bananas are almost impossible to grow in the U.S. Thus, this “produce everything here” approach is not a solution and may make the U.S. even worse off—as Boudreaux and Gramm point out in their book.

Why Buying Abroad Still Saves us Money

David Ricardo first made this argument in 1817 in On the Principles of Political Economy and Taxation. He explains why, in modern economies, trade results in cheaper goods.

Some countries can produce goods more cheaply than we can in the U.S., giving us access to lower-priced products. But even if we could produce the same goods at home, it still makes more sense to import them if our labor and resources are better used producing something else. Here’s a simple example.

A salesman wonders if he should repair toilet himself or call a plumber. The plumber will charge $80. The salesman could get the parts for $40 and would spend an hour fixing the toilet himself. But were he selling during that hour, he would likely net $100. With the cost of parts ($40) and the lost income from not selling ($100), he would be out $140 instead of the $80 he would pay the plumber, a $60 gain.

Every company faces the same “make or buy” decisions, and it often makes more sense to buy an item rather than make it from scratch. In international trade, saving money this way is called “comparative advantage”—and the theory has worked ever since posited by David Ricardo more than 200 years ago.

Still, why not grow food here at home?

First, importers pass on some of the costs paid by the countries exporting to us. As in the plumbing example, even if we bring back agricultural production from Mexico to the U.S., we may be diverting resources (people and equipment), possibly away from other production, in essence robbing the manufacture (Peter) of AI chips to pay (Paul) for growing vegetables. This example came from the Gramm and Boudreaux book and illustrates the same tradeoff as the plumber example.

Are Healthy Foods Really More Expensive?

Is eating healthy foods more expensive? Americans pay 40% more for fruits and vegetables than those in other countries due to enormous fixed costs in bringing them to market, e.g., trucking, energy costs, etc.—a partial explanation for fewer Americans consuming healthy foods. Depending on where you live, healthy food may be more or less expensive—for example, such foods are 28 times more expensive in Hawaii but only twice as expensive in Colorado.

Nevertheless, eating healthy meals may not necessarily be more expensive. One website shows that, For a family of four, a McDonald’s meal of Big Macs, cheese burgers, Chicken McNuggets and Cokes cost $27.89, but a home-cooked meal for four of chicken, potatoes and salad costs $13.78 and pinto beans and rice for four only $9.26. Maybe with a little more preparation and time, we can eat healthier foods. Note that this analysis does not factor in the cost of the time spent preparing the meals.

Another way to bring down the price of eating healthy food would be to eat less food. In 1980, we ate an average of 3,200 calories per day and 16 percent if Americans were obese. Today, Americans consume almost 4,000 calories per day and the obesity rate is 42%, a 25% increase. Eating less food might not be cheaper but would very likely be the healthier option.

One way to start addressing the burden of higher food prices would be to review tariffs for their effect on prices. Amy Auchincloss, associate professor of Public Health at Drexel University notes: “We are consuming way too many sugary foods like cookies, candies and pastries, and sugary drinks, like soda and fruit drinks.” She also noted that less than 20 percent of Americans consume the recommended amounts for fruits and vegetables.

The takeaway: Eating less—and eating smarter—is still the most reliable way to eat healthy.