Trump-Biden tariffs hurt domestic manufacturing
Boosting American industry is a political goal shared by many lawmakers and is a key issue for debate under the Build Back Better Act and other year-end laws. The debates are missing how the tariffs put in place by the Trump administration, and largely maintained by the Biden administration, negatively affect American manufacturers. If policymakers want to boost US industry and help relieve inflationary pressures, ending tariffs should be an obvious place to start.
The Trump administration has raised import taxes on washing machines and solar panels, steel and aluminum, and a wide range of goods from China to a total of nearly $ 80 billion dollars in new taxes per year. According to the Trump administration, tariffs would revive the manufacturing sector and create jobs in the United States – flawed promises that many analyzes have shown have not been kept.
The idea of ââpolicies such as tariffs (or quotas) is that the government helps the domestic industry by protecting it from foreign competition, thus allowing it to develop. Such protection, however, turns against him. Tariffs are ultimately paid largely by consumers and businesses in the national economy, can lead to stagnation as protected industries are shielded from competitive pressures and invite retaliatory tariffs from other countries which incur costs additional.
The multitude of research showing widespread damage from Trump tariffs should be a wake-up call for the Biden administration’s choice to keep them in place, or even to double down on the approach. Namely, Trump’s 25 percent frame rate hike to 246 percent in May (which contributed to the current shortage that is erasing U.S. ports) and the recently announced doubling of lumber tariffs Canadian (which will further strain the housing market).
According to the research of Fernando Leibovici of the Federal Reserve of St. Louis, every industry in the US manufacturing sector makes intensive use of intermediate inputs, goods used in the production process to make an end good. On average, US manufacturing firms buy 22% of their intermediate inputs from abroad. By raising the prices of intermediate inputs, Leibovici argues that the new US tariffs are likely to have a significant negative impact on the manufacturing sector, with the potential to “force US manufacturers to raise prices, thereby harming consumers and causing disruption. production cuts. Additionally, some businesses may not be able to compete in this alternate environment and may have to shut down. ”
Federal Reserve economists Aaron Flaaen and Justin Pierce have taken a detailed look at the effects of the new tariffs on employment, output and producer prices in US manufacturing. They were careful to measure the benefits of tariffs for protected firms and the costs of tariffs for firms facing higher input prices or other distortions. On the net, they noted a decrease in manufacturing employment due to tariffs: the positive contribution of protected industries (0.3%) was largely offset by the effects of rising input costs (-1.1 %) and by retaliatory tariffs (-0.7%). They found that the manufacturing industries most exposed to tariff increases experienced relative reductions in employment, showing that “tariffs have been a drag on employment and have failed to increase output.”
Other estimates also suggest that saving a relatively small number of jobs in a sheltered industry comes at a very high cost. Gary Hufbauer and Euijin Jung of the Peterson Institute for International Economics estimated that the Trump administration’s steel tariffs would increase steel employment by about 8,700 jobs, but at an average cost of about 650 $ 000 per job, about 11 times the average wage earned by steelworkers. , indicating a high level of inefficiency and economic loss. Their estimates do not attempt to measure job losses in downstream industries, but they note that “the job losses likely outweigh the jobs created to a large extent.”
St. Louis Federal Reserve economists Ana Marie Santacreu and Makenzie Peake assessed the correlation between trade exposure at the start of the trade war and job and output growth in order to assess the effects of change in US trade policy. Their empirical analysis shows that states most exposed to U.S. tariffs on imports from China experienced smaller increases, or even decreases, in employment and output, providing further evidence that exposure to tariffs has played a role in reductions in employment and production.
In a National Bureau of Economic Research article, Mary Amiti, Sang Hoon Kong, and David Weinstein quantify the impact of U.S.-China tariff announcements on investment. In their sample of companies, they find that the U.S. and Chinese tariff announcements lowered aggregate stock prices by $ 1.7 trillion, which they said would lead to a 1.9 percentage point drop in growth. investments by listed companies over two years.
Beyond the direct effects of tariffs on employment and production, the uncertainty created by an erratic trade and tariff policy has its own negative effects. Research by Federal Reserve economists Dario Caldara, Matteo Iacoviello, Patrick Molligo, Andrea Prestipino and Andrea Raffo shows how trade policy uncertainty like that caused by the actions of the Trump administration can reduce investment and activity. economic. They find that the recent uncertainty shock in 2018 predicts a decline in the level of aggregate investment of between 1 and 2 percent, and that trade uncertainty has reached levels not seen since the 1970s.
If all the evidence for contemporary tariff damage was not sufficient to deter policymakers from suing the Trump administration’s damaging tariffs, a new article by Harvard economist Lydia Cox provides further warning on the long-term damage. term caused by temporary tariffs.
Cox studied the steel tariffs that were put in place under the Bush administration and quickly reversed thereafter, finding that “even temporary tariffs can have cascading effects across production networks when they are placed on upstream productsâ¦ upstream steel tariffs have very persistent negative impacts on the competitiveness of US exports from the downstream industry.
When tariffs are put in place, it disrupts established trade flows, but when tariffs are lifted, business models do not automatically spring back into place. One of Cox’s conclusions is that âdeclines in the competitiveness of US exports due to tariffs are very persistent – global market share remains depressed from pre-tariff levels for at least 8 years after the lifting of tariffs. prices. Likely as a result of this loss of market shareâ¦ steel-intensive industries have suffered persistent declines in employment in response to relatively high tariff rates on steel.
Economists since the 18the century have argued that protectionist trade policies can only backfire. As lawmakers today seek ways to boost U.S. industry and lower costs for consumers, they should pay attention to the mountains of evidence that the Trump-Biden tariffs have hurt American consumers and businesses. Removing tariffs is perhaps the most readily available, timely, and efficient way to support industry and employment in the United States while reducing costs to consumers. It would be a nice Christmas present.
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