11 Feb 2019
New Study Finds Additional Tariffs Negatively Impact U.S. Economy
A recently released study entitled Estimated Impacts of Tariffs on the U.S. Economy and Workers represents yet another attempt to show the impact on U.S. workers, consumers, manufacturers and farmers of the additional tariffs imposed by the Trump administration on a broad range of goods. The analysis begins with a “base scenario” of 25 percent duties on all mainland Chinese goods previously announced for tariffs, including the US$250 billion currently subject to 10 percent duties (which the model assumes at a 25 percent level, as may occur on 2 March). This scenario assumes that the current global steel and aluminium tariffs and quotas remain in effect, along with all current retaliatory duties affecting U.S. exports. The model yields an annual 0.37 percent negative impact on U.S. gross domestic product, with an annual cost to the average American family of four of US$767. It also estimates a one-time net loss of 934,700 jobs, with every U.S. state experiencing net job losses.
The study was prepared by The Trade Partnership and co-authored by a professor who served as a research economist at the World Trade Organisation and led the Office of Economics at the U.S. International Trade Commission. In addition to the base scenario, it provides three higher impact scenarios including tariffs on certain motor vehicles and parts (under consideration under Section 232), tariffs on all remaining mainland Chinese exports, and a “trade war” scenario that combines the three previous scenarios (steel/aluminium tariffs/quotas plus retaliation, tariffs on all U.S. imports from mainland China plus retaliation, and tariffs plus retaliation on U.S. motor vehicles and parts from foreign suppliers other than Canada, Mexico, Korea, the European Union and Japan). Not surprisingly, each scenario reflects increased harm to the U.S. economy compared to the base scenario.
The “trade war” scenario may not encompass all potential negative effects since it assumes that the auto tariffs never apply to major suppliers, nor does it consider potential tariffs on other commodities (such as uranium, which is also currently subject to a Section 232 probe). The study found that even in cases when U.S. manufacturing jobs increase, service jobs decrease more. Even with all caveats, the study reinforces the views of most mainstream economists that large and unpredictable tariff increases harm all sides.
Senators Tom Carper (Democrat-Delaware), Mark Warner (Democrat-Virginia), Pat Toomey (Republican-Pennsylvania) and Ron Johnson (Republican-Wisconsin) attended the “Tariffs Hurt the Heartland” press conference where the study was released. Each scenario in the report showed the jobs impact broken down by industry sector and U.S. state. Since any actions to undo the Trump administration’s tariffs will probably begin in the U.S. Congress, the study provides an invaluable snapshot to lawmakers of the cost to their constituents of Trump’s trade policy.