The punishing tariffs that Donald Trump imposed on imported goods and materials from overseas in 2018 may have helped reduce market competition, giving a boost to some American industries. But whatever benefit the tariffs created was essentially wiped out by the loss of American jobs and increased prices that have held the United States’ manufacturing sector in a stagnant position. That finding comes from a new economic study of the 2018 Trump tariffs conducted by the Federal Reserve Bank and released earlier this week.
The Fed report comes after an independent report in November — based on data released by the U.S. Commerce and Agriculture department — found that the Trump tariffs soaked American consumers for $4.1 billion in the month of September this year alone.
Now, the Fed study has found that Trump’s aggressive tariffs not only siphoned money from American pockets but also placed a drag on the whole economy.
“The 2018 tariffs are associated with relative reductions in manufacturing employment and relative increases in producer prices,” Federal Reserve economists Aaron Flaaen and Justin Pierce wrote, in the paper presented as part of the academic Finance and Economics Discussion Series on December 23.
Some of the industries that took the hardest hit from economic retaliation by countries whose goods Trump slapped with heavy tariffs included automobile makers and producers of household appliances, audio and video equipment, computer equipment, sawmills, pesticides, magnetic and optical media, leather, and metals such as aluminum, iron and steel, according to a MarketWatch summary of the Fed report.
In addition, the Fed study called into question the entire premise for Trump’s tariffs, which was that a “trade war” — that is, a volley of tariffs back and forth between countries — can boost the U.S. economy. Trump himself claimed last year that trade wars are “good, and easy to win.”
Not according to the Federal Reserve findings, however. According to Flaaen and Pierce in their paper titled “Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector,” what they call “tit-for-tat retaliation” — or “traditional import protection” — has lost much of its effectiveness as a trade war weapon in a world economy that is now dependent on “globally interconnected supply chains.”
“The impact from the traditional import protection channel is completely offset in the short-run by reduced competitiveness from retaliation and higher costs in downstream industries,” the Fed economists wrote.
One factor that the Fed study did not explore, however, was the effect on “business confidence” of Trump’s trade war and the uncertainty that it produces, according to the Marketwatch analysis.
Economists see “doubt about future government policy” as a “primary driver” of reduced business investment, which has also been seen in the U.S. economy since Trump’s trade war kicked into gear, according to Marketwatch.