President Trump recently delayed imposing new tariffs on Chinese imports, stating that a deal was “very close.” While the details of any deal remain unclear, Trump’s aggressive stance on trade has divided opinion. Protected industries, including steel, claim that Trump’s “strong trade actions” are partly responsible for new jobs and better pay.
However, economists, along with a chorus of export-oriented industry groups, still insist tariffs do far more harm than good. With an announcement looming, it’s worth taking stock of what we know about the effects of Trump’s tariffs and economic policy.
Jobs are being created, but wages are still low
One justification for tariffs on Chinese imports is the claim that trade protection creates jobs. Taxing foreign goods increases demand for domestic products, bolstering production and sending more Americans to work.
There are some numbers that support this argument. New jobs have been added in every month of Trump’s presidency, averaging 200,000 per month. This includes roughly 450,000 manufacturing jobs. After shedding 5 million jobs from 2001 to 2010, the manufacturing sector has enjoyed a soft rebound.
In addition, there is anecdotal evidence of new employment in protected industries, including 1,100 jobs at the U.S. Steel’s Fairfield Works. Supporters of Trump’s trade protection claim that job creation outpaces losses from tariffs 20:1.
However, this may not be the result of tariffs. The United States has enjoyed over 100 straight months of uninterrupted job growth. This means that strong performance under Trump cannot be attributed to recent policy shifts. Furthermore, most of those jobs are in services, not manufacturing. Services employment grew dramatically after the Great Recession, increasing by about 17 million.
Moreover, the raw job numbers do not tell us anything about the “quality” of those jobs. A closer look at wages is less encouraging. Manufacturing wages improved slightly in 2018, growing by 3 percent. Yet, wages plateaued in the last several months, showing little improvement in the last several months. More generally, wage growth still lags behind pre-Great Recession numbers.
Prices are holding steady for consumers but not for manufacturers
Economists argue that the main problem with trade barriers is that they increase costs. Even if jobs are created, consumers lose by paying more for everyday goods and services. Thus far, consumer prices in some major industries are holding steady, including the automotive industry, where steel tariffs were expected to raise the sticker prices at car dealerships.
Steady prices may help explain why holiday spending was better than expected. Holiday spending is a common indication of consumer confidence, and retailers, particularly online, reported strong performance. Yet, behind the scenes, prices have increased significantly for producers. Steel prices rose 20 percent in 2018, leading to loud protests from producers like Caterpillar and Ford. It is likely that consumer prices will rise soon if U.S.-China tensions are not alleviated.
President Trump has conceded as much, admitting that iPhone prices would rise as a result of tariffs but claiming this is just one more reason to move production to the United States.
The trade deficit is still growing
A central theme of Trump’s rhetoric is standing up to trade discrimination around the world, which, in his view, accelerates the decline of American manufacturing. Here, there is far less evidence that Trump’s strategy is working as planned. The trade deficit — which Trump often cited as evidence of America’s mistreatment at the hands of its partners — continues to grow. The deficit in goods trade approached $800 billion by November 2018, a 10-year high.
Tariffs have not stemmed the inflow of consumer goods. In fact, there is some evidence that trade barriers actually increased imports of key inputs like steel as producers hoarded supply before prices got too high.
Furthermore, there is lost market access. Goods originally destined for China are suffering from Beijing retaliatory measures. It is not easy — or cheap — to find alternatives in the global marketplace. The result has been piles of soybeans with nowhere to go.
The trade war has had real consequences
Trump’s tariff policy has not yet led, as feared, to sweeping job losses and rocketing prices. Nor has the U.S. economy slipped into the deep recession that some predicted. However, that does not necessarily mean, as Trump claimed, that trade wars are “easy to win.” There are clear costs to trade conflict. Buried in the news about U.S. Steel’s investment in Alabama is that tariffs have already cost GM $1 billion — leading the company to announce up to 14,000 layoffs.
There may also be broader international consequences. The U.S. now faces unprecedented levels of trade litigation in Geneva, and key trade partners have sought more predictable allies elsewhere. All of America’s top 5 trade partners continue to negotiate new agreements with one another — deals that leave the United States on the sidelines. Whatever happens on or around the March 1 deadline, there have clearly been significant economic repercussions from the year-long trade fight.
Jeffrey Kucik is an Assistant Professor in the School of Government and Public Policy at the University of Arizona and the author of www.trademonitoronline.com