President Trump has promoted his trade policy, specifically his tariffs on imported goods, as a means of reviving American manufacturing. It has done the opposite, according to a new study from Federal Reserve economists. Trump's trade war with China and other countries has led to higher consumer prices, failed to boost U.S. manufacturing, and led to domestic job losses.
"We find that the 2018 tariffs are associated with relative reductions in manufacturing employment and relative increases in producer prices," write Fed economists Aaron Flaaen and Justin Pierce. The tariffs did boost the competitiveness of some U.S.-made goods inside the U.S., they found, but that was "completely offset in the short-run by reduced competitiveness from retaliation and higher costs in downstream industries," and protectionist policies are now intrinsically "complicated by the presence of globally interconnnected supply chains."
The industries hit especially hard by "tit-for-tat retaliation" from China and other trading partners include automobiles, iron and steel, aluminum sheet, leather goods, appliances, and various appliances and electronic goods. Those hurt by increased prices include aluminum, steel, boilers, and appliances. "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," Flaeen and Pierce conclude.
"The researchers don't measure the effects on business confidence resulting from the uncertainty regarding U.S. international trade policy," says Greg Robb at MarketWatch. "Many economists see this doubt about future government policy as a primary driver in the decline in business investment this year." Read The Week's Jeff Spross for other economic policy failures that ended up making the 2010s a lost decade.
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