Trump trade wars cost jobs, hike prices
Federal Reserve issues study on president’s ‘unprecedented tariff increases’
Employees await President Trump last year before his visit to the U.S. Steel Granite City Works. (One Illinois/Ted Cox)
By Ted Cox
A new study from the U.S. Federal Reserve Board finds that President Trump’s trade wars, intended to boost U.S. manufacturing, actually cost worker jobs and hike consumer prices.
The study, “Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector,” was released last week. It found that, while U.S. manufacturing enjoyed benefits from the “unprecedented tariff increases,” those gains were ultimately undercut by retaliatory tariffs and by rewarding inefficiency, so that jobs were lost as prices increased.
“We find that U.S. manufacturing industries more exposed to tariff increases experience relative reductions in employment,” wrote authors Aaron Flaaen and Justin Pierce, “as a positive effect from import protection is offset by larger negative effects from rising input costs and retaliatory tariffs. Higher tariffs are also associated with relative increases in producer prices via rising input costs.”
Trump’s trade wars, launched early last year, disrupted a period of global free trade. The study stated: “There are virtually no modern episodes of a large, advanced economy raising tariffs in a way comparable to the U.S. in 2018-2019.”
It added: “While existing research has mostly documented negative consequences of the tariff increases on the broad economy — including higher prices, lower consumption, reduced business investment, and drops in the valuations of affected firms — some might view these effects as an acceptable cost for achieving the policy aim of ensuring more robust manufacturing activity in the United States.”
The study goes on to debunk that belief, stating: “On the one hand, U.S. import tariffs may protect some U.S.-based manufacturers from import competition in the domestic market, allowing them to gain market share at the expense of foreign competitors. On the other hand … the associated increase in costs may hurt U.S. manufacturers’ competitiveness in producing for both the export and domestic markets. Moreover, U.S. trade partners have imposed retaliatory tariffs on U.S. exports of certain goods, which could again put U.S. firms at a disadvantage in those markets, relative to their foreign competitors.”
One of Trump’s first salvos in the trade wars launched early last year slapped tariffs on Chinese steel imports, to benefit the U.S. steel industry, and Trump touted that at an appearance at the U.S. Steel Granite City Works. But U.S. manufacturers like automakers wound up paying higher prices for steel as a result, harming those industries.
“We find that tariff increases enacted in 2018 are associated with relative reductions in manufacturing employment and relative increases in producer prices,” the study states.
The study calls into question Trump’s continuing trade wars, particularly with China. “These results have implications for evaluating the effects of recent U.S. trade policy,” it concludes. While some may attempt to justify protectionist tariffs as “an acceptable cost for a more robust manufacturing sector, our results suggest that the tariffs have not boosted manufacturing employment or output, even as they increased producer prices. While the longer-term effects of the tariffs may differ from those that we estimate here, the results indicate that the tariffs, thus far, have not led to increased activity in the U.S. manufacturing sector.”
It adds that any attempt to use tariffs strategically “is complicated by the presence of globally interconnnected supply chains,” as with Chinese importers replacing U.S. soybeans with crops from South America. “We find the impact from the traditional import protection channel is completely offset in the short-run by reduced competitiveness from retaliation and higher costs in downstream industries.”