Tariffs Drove Manufacturing Job Losses, Fed Report Says

A new report from the Federal Reserve found that tariffs imposed since 2018 have led to manufacturing job losses and higher consumer costs. 

A new report from the Federal Reserve found that tariffs imposed since 2018 have led to manufacturing job losses and higher consumer costs.  Shutterstock

 

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President Trump said that tariffs would boost U.S. manufacturing. New research found, so far, that isn’t the case.

A new report from the Federal Reserve found that tariffs imposed since 2018 have led to manufacturing job losses and higher consumer costs. 

The two economists at the Federal Reserve who authored the report, Aaron Flaaen and Justin Pierce, called the tariff increases that have happened during President Trump’s tenure in the White House “unprecedented.”

The top ten industries most affected by China’s retaliatory tariffs were magnetic and optical media, leather goods, aluminum sheet and foil, iron and steel mills, motor vehicle manufacturing, household appliances, sawmills, audio and video equipment, pesticides and agricultural chemicals, and computer equipment.

Tariffs were felt more deeply in the manufacturing sectors of certain states. When a steel mill in Louisiana closed and filed for bankruptcy in October, Gov. John Bel Edwards, a Democrat, wrote to Trump asking for a reprieve in tariffs on these goods. “Louisiana is among the most dependent states on tariffed metals, which is why we continue to be hopeful for a speedy resolution to the uncertainty of the future of tariffs,” Edwards said.

Trump has framed the tariffs as a bargaining chip. “Tariffs are a great negotiating tool, a great revenue producer and, most importantly, a powerful way to get companies to come to the USA and to get companies that have left us for other lands to COME BACK HOME,” Trump tweeted in July.

Flaaen and Pierce’s research disputes this assertion. “[The tariffs] were imposed, in part, to boost the U.S. manufacturing sector by protecting against what were deemed to be the unfair trade practices of trading partners, principally China,” they wrote. “Our results indicate that tariffs have been a drag on employment and have failed to increase output.”

The new report aligns with several other studies conducted by independent research organizations and industry groups. In early December, the Solar Energy Industries Association released a market impact analysis that found tariffs on imported solar cells led to the loss of more than 62,000 jobs and $19 billion in private sector investment.

Abigail Ross Hopper, president of the solar group, said in a statement that the research makes a case for the immediate removal of tariffs. “Solar was the first industry to be hit with this administration’s tariff policy, and now we’re feeling the impacts that we warned against two years ago,” she said. “This stark data should be the predicate for removing harmful tariffs and allowing solar to fairly compete and continue creating jobs for Americans.”

Job losses in sectors as diverse as the beer and brewing world and local newspapers have also been attributed to tariff hikes, though perhaps the group hardest hit by the tariffs have been farmers, who saw price reductions and a smaller international market.

The researchers for the Federal Reserve note, however, that the longer-term effects of tariffs may be more positive than the short-term impacts. Flaaen and Pierce write that there may be a “more substantial expansion” of the U.S. manufacturing sector as companies that rely on a global supply chain shift to U.S. raw materials and products in order to avoid tariffs. 

That possibility, they write, could mean that the negative consequences of tariff expansion, “including higher prices, lower consumption, reduced business investment, and drops in the valuations of affected firms” could be viewed “as an acceptable cost for achieving the policy aim of ensuring more robust manufacturing activity in the United States.”

But Flaaen and Pierce cautioned against putting too much stock in that possibility. Instead, they suggest that there is evidence to assume that, when faced with tariffs, U.S. companies will relocate their operations and supply chains not back to the U.S., but to other countries that do not face tariffs. They note the case of China-specific tariffs placed on washing machines in 2017, after which several companies moved production to Thailand and Vietnam. When washing machine tariffs were later amended to be worldwide, the firms moved “some sizable production” to the U.S. However, they also noted that consumers here ended up spending more.

President Trump and President Xi Jinping of China recently reached an agreement that will roll back some of the tariffs the U.S. has imposed on Chinese imports starting in mid-January.

Emma Coleman is the assistant editor for Route FIfty.

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