Publications /
Opinion

Back
Trump Tariffs Have Hurt U.S. Manufacturing Jobs
Authors
January 5, 2020

The hike in tariffs imposed by the United States against its major trading partners since early 2018 has been unprecedented in recent history. President Trump alluded to, among others, the goal of revitalizing jobs in the country’s manufacturing industry by protecting it from unfair trade practices of other countries, particularly China. However, according to a study by two Federal Reserve Bank staff – Aaron Flaaen and Justin Pierce – released last December 23, the effect so far has been just the opposite, i.e. a reduction in U.S. manufacturing employment!

Tariff escalation – and retaliation from those affected – from 2018 onwards took place in three stages. In February of that year, surcharges were imposed on imports of washing machines and solar panels, followed in March by others affecting steel and aluminum imports. China, the European Union, Canada, and Mexico responded with retaliation on U.S. exports. A third moment came with the sequence of tariffs on imports from China announced starting in April, always accompanied by Chinese retaliatory reactions against U.S. exports.
Chart 1, taken from the Fed study, depicts the escalation of U.S. import tariffs and retaliations since 2018, including the latest rounds currently suspended after the announcement of an incoming “phase one” U.S.-China trade deal.

PCNS

In addition to the Trump administration’s references to U.S. security issues and trade deficit reduction targets, with an emphasis on bilateral deficit cases, the resumption of domestic manufacturing employment had emerged as a promise since the electoral process. Tariffs would provide the opportunity for local production processes to take market shares occupied by foreign competitors. Higher product prices, whether imported or locally import-substituted, would be an acceptable and limited welfare cost offset by increases in manufacturing employment levels.
However, two other tariff impacts should also be considered. The imposition of tariffs on inputs and intermediate products leads to cost increases for those who use them, damaging their competitiveness domestically and externally. In addition, retaliation also affects the ability of domestic production to compete in the corresponding overseas markets.
Flaaen and Pierce estimated the weight of these effects at a very detailed sector level, namely the gain of local market shares against the burden of rising intermediate costs and overseas losses. The study comes to figures showing that the burden has outweighed the gains, with the positive contribution on employment driven by tariff protection being more than negatively offset by the impacts of rising input costs and retaliatory measures. In addition, it has led to increases in U.S. wholesale price levels.
The characteristics of industrial production as value chains integrating fragmented and geographically dispersed activities, particularly since the 1980s, explain why tariffs on specific segments end up negatively affecting a much broader set of economic activities. In addition, they tend to frustrate tariffs that are specifically set on countries of origin, on a bilateral basis: for example, much of Chinese production has moved to Vietnam, Thailand and other countries rather than to the U.S.
Is the negative effect temporary, lasting only while local production does not adjust to the new context via new investments? It should be noted that adaptation can also reinforce the negative impact sides on jobs. Therefore, there is no reason to believe that the immediate, short-term consequences of the tariff escalation would wind down over time.
The Fed study of the effects of tariff escalation did not even encompass the broader negative indirect effects, namely the depressive effect on manufacturing investments and economic growth in the U.S. and abroad generated by trade policy uncertainty, affecting particularly capital goods industries and world trade. Such an impact on investments was one of the major factors explaining the global economic growth in 2019 as the lowest since the global financial crisis.
But hasn’t the U.S. GDP and employment performance remained favorable since the onset of the tariff escalation? That has occurred for other reasons, such as the fiscal stimulus provided by the tax reform of the early Trump administration, the pivotal turn of the Fed’s monetary policy, and the buoyancy of domestic consumption and services. It would have been otherwise if it had depended on the manufacturing industry – Chart 2 – and trade policy of the Trump administration.

PCNS

Finally, it is worth remembering the mistake of finding it possible to shrink the U.S. current account deficit via trade measures upon countries with which it has negative bilateral balances. The current account deficit reflects the difference between domestic “absorption” (consumption and investment) and local production. In the absence of miraculous increases of the latter, the reduction of the current deficit would only occur with recession and falling domestic wages, just the opposite of the promise.

RELATED CONTENT

  • Authors
    November 21, 2023
    Multiple shocks faced by the global economy over the past three years have apparently shaken the conventional wisdom on gains from economic integration, and have sparked widespread calls for protectionist and nationalist policies. Is there already evidence of some ‘deglobalization’, or do the factors that underlie globalization remain strong enough despite the shocks? So far, there are no signs of an overall reversal in the long-term trend of greater global trade integration. Howev ...
  • Authors
    November 2, 2023
    The global economic environment has changed as the U.S.—and to a less confrontational degree, the European Union—have clearly established a context of technological rivalry with China. Hindering China’s progress in the sophistication of semiconductor production has become a centerpiece of current U.S. foreign policy. While the U.S. is clearly winning the semiconductor war, the picture is different when it comes to clean-energy technology. Both technology wars overlap with access to ...
  • Authors
    August 29, 2023
    At the August 22-24 BRICS summit in Johannesburg, the leaders of Brazil, Russia, India, China and South Africa said they wanted to use more of their national currencies for cross-border payments, which are currently dominated by the U.S. dollar and other global convertible currencies. Like China and the other BRICS, several other countries have also sought to develop alternative external payment mechanisms. Pairs of countries have agreed to settle commercial and financial transactio ...
  • April 10, 2023
    This policy paper examines India’s growing engagement in North Africa, focusing on five countries: Morocco, Algeria, Tunisia, Libya, and Egypt. Despite lacking a distinct regional policy for North Africa, India has amplified its bilateral engagement with these countries, underpinned by a steadfast commitment to the principle of South-South cooperation. Through its strategic moves in North Africa, India has established a powerful southern-west axis for its foreign policy that stretch ...
  • September 23, 2022
    A l’occasion de l’anniversaire des 60 ans des relations diplomatiques et économiques entre la République de Corée et le Royaume du Maroc, une rencontre est organisée par le Policy Center for the New South en collaboration avec le Korean Institute for International Economic Policy (KIEP)...
  • September 23, 2022
    Relations between Rabat and Seoul have been in a state of considerable flux in every aspect since the establishment of diplomatic relations between the two countries in July 1962. The Korean embassy in Rabat is Seoul's first permanent diplomatic representation on the African continent. ...
  • Authors
    August 23, 2022
    Disruptions to global value chains (GVCs) – caused by conflicts, natural disasters, and accidents that close transport routes – and that affect specific regions or sectors, are not unusual. However, in recent years and amid the Covid-19 pandemic, they have become more frequent and severe. High profile, sizeable, and repeated disruptions raise pressing questions: Is the breakdown in many GVCs a temporary glitch, or a permanent phenomenon? Have GVCs become endemically more accident pr ...
  • July 29, 2022
    يخصص مركز السياسات من أجل الجنوب الجديد حلقة برنامجه الأسبوعي "حديث الثلاثاء"   لمناقشة آفاق التعاون بين كوريا الجنوبية و إفريقيا مع المصطفى الرزرازي، الباحث البارز بمركز السياسات من أجل الجنوب الجديد. شهدت العلاقات الكورية الإفريقية إنطلاقاً من العقد الأول من الألفية تطوراً ملحوظاً ات...
  • Authors
    Said El Hachimi
    July 27, 2022
    Sleepless nights and the tireless search for compromise allowed WTO members to agree on concrete deliverables during the WTO 12th Ministerial Conference held last June. Those results reinforce Multilateralism. And this is a significant gain given the multiplicity of global crises that surround us. The Outcome include 6 Agreements, Declarations and Ministerial Decisions that respond to some of today's challenges, notably on Fisheries and Ocean Sustainability as well as responses to P ...
  • Authors
    May 6, 2022
    In addition to the deaths and destruction in Ukraine, the Russian invasion has caused several significant shocks to the global economy. In addition to the geopolitical consequences of the war, reinforcing the downward trend in trade globalization and financial integration, new rounds of disruptions to supply chains and higher commodity prices have already led to downward revisions in economic growth projections, accompanied by higher inflation. The commodity price shock, intensify ...