Dear Commons Community,
A new paper by Federal Reserve economists, Aaron Flaaen and Justin Pierce, concludes that President Donald Trump’s trade war and his “unprecedented” increase in tariffs on foreign imports hurt the very sector he intended to boost — manufacturing — and cost American jobs. The paper suggests the trade war approach fails to recognize the sophisticated interconnection of global supply chains that also benefits U.S. companies
“We find that tariff increases enacted in 2018 are associated with relative reductions in manufacturing employment and relative increases in producer prices,” the economists concluded.
While Trump’s tariffs did reduce competition for some industries in the U.S. market, this “small positive effect” was more than offset by rising costs that U.S. companies (and consumers) had to pay for imports and by retaliatory tariffs, the paper found.
“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,” according to the research.
The paper noted that U.S. manufacturing employment and output increased at a “robust pace” in 2017 through much of 2018. But since late last year, manufacturing output “declined noticeably and manufacturing employment growth has stalled.”
U.S. industries hurt most by retaliatory tariffs sparked by Trump’s trade war included leather goods; aluminum sheet, iron and steel; motor vehicles; household appliances; audio and video equipment; and computer equipment, the paper said.
An abstract of the paper is below.
Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector
Aaron Flaaen Federal Reserve Board and
Justin Pierce Federal Reserve Board
December 23, 2019
Since the beginning of 2018, the United States has undertaken unprecedented tariffincreases, with one goal of these actions being to boost the manufacturing sector. Inthis paper, we estimate the effect of the tariffs—including retaliatory tariffs by U.S.trading partners—on manufacturing employment, output, and producer prices. A keyfeature of our analysis is accounting for the multiple ways that tariffs might affect themanufacturing sector, including providing protection for domestic industries, raisingcosts for imported inputs, and harming competitiveness in overseas markets due toretaliatory tariffs. We find that U.S. manufacturing industries more exposed to tariffincreases experience relative reductions in employment as a positive effect from importprotection is offset by larger negative effects from rising input costs and retaliatorytariffs. Higher tariffs are also associated with relative increases in producer prices viarising input costs.