Fed Study: Trump Tariffs Backfired, Led to Job Losses and Higher Prices

President Donald Trump gestures during the Turning Point USA Student Action Summit at the Palm Beach County Convention Center in West Palm Beach, Florida on December 21, 2019.

NICHOLAS KAMM/Getty Images

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President Donald Trump said that increasing the use of import tariffs would help protect U.S. manufacturers. Turns out though, his tactics did exactly the opposite, causing job losses while also increasing prices for consumers, according to a study recently published by the Federal Reserve.

Economists Aaron Flaaen and Justin Pierce pointed out that the tariffs imposed since the beginning of 2018 have been “unprecedented.” Yet the goal of protecting the manufacturing sector wasn’t really fulfilled considering that any positive gains from the tariffs were offset by rising costs and retaliatory tariffs. “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,” the study said.

The Fed researchers go as far as to suggest that Trump’s entire strategy of tariffs to make gains domestically is a thing of the past due to the way in which global supply chains are interconnected. “We find 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 economists wrote. At the same time, consumers end up paying a lot more for a variety of products.

Now, the WH would say that it takes a while for supply chains to adjust, and manufacturers will recover as they find alternative input sources. Also theoretically, mounting pressure will eventually force the Chinese to knuckle under in a way that will rebalance global trade.

— Lydia DePillis (@lydiadepillis) December 27, 2019

Commenting on the study, Lydia DePillis of ProPublica tweeted that it proves “the trade war is hurting the sector it was ostensibly supposed to help.”

There are also other factors the study doesn’t consider that could make the tariffs even less effective than what the authors claim. MarketWatch’s Greg Robb notes that the study doesn’t “measure the effects on business confidence resulting from the uncertainty regarding U.S. international trade policy.” Many economists have pointed to this uncertainty as a main reason for the drop in business investment this year, notes Robb.

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