Hey, did you hear the one about the guy who thought tariffs would work out better for him than they did for Smoot, Hawley, and Hoover?
Three years ago, I wrote that Trump’s tariffs would tank the markets, agriculture, and manufacturing. I was wrong about the markets: since the end of 2016, the Dow Jones and the S&P are up 45%. But that only matches the best three-year growth rates for the Dow under Obama (43% in 2013 and 46% 2014) and falls short of the best three-year growth rates for the S&P post-recession (47% in 2013 and 64% in 2014). And much of that growth happened pre-tariffs, in 2017. After Trump announced his first tariffs in January 2018, the markets went all jiggly-jig, losing ground in 2018 before learning to read, like China, the predictably unpredictable madman in the White House:
While the market picture is mixed, the picture for the other two parts of my tariff prediction are not. The only farmers making money under the tariffs are the rich operators raking in six-figure Trump farm welfare checks.
And just like farmers, manufacturers have been hurt by the tariffs that Trump promised would help. According to a new study by the Federal Reserve, Trump’s tariffs have done to manufacturing exactly what the Smoot-Hawley tariffs did—raised the cost of inputs and killed jobs:
We find that the 2018 tariffs are associated with relative reductions in manufacturing employment and relative increases in producer prices. For manufacturing employment, a small boost from the import protection effect of tariffs is more than offset by larger drags from the effects of rising input costs and retaliatory tariffs. For producer prices, the effect of tariffs is mediated solely through rising input costs.
These results have implications for evaluating the effects of recent U.S. trade policy. While one may view the negative welfare effects of tariffs found by other researchers to be an acceptable cost for a more robust manufacturing sector, our results suggest that the tariffs have not boosted manufacturing employment or output, even as they increased producer prices. 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.
In addition, our results suggest that the traditional use of trade policy as a tool for the protection and promotion of domestic manufacturing is complicated by the presence of globally interconnnected supply chains. While the potential for both tit-for-tat retaliation on import protection and input-output effects on the domestic economy have long been recognized by trade economists, empirical evidence documenting these channels in the context of an advanced economy has been limited. 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 [Aaron Flaaen and Justin Pierce, “Disentangling the Effects of the 2018–2019 Tariffs on a Globally Connected U.S. Manufacturing Sector,” Finance and Economics Discussion Series 2019-086, Washington: Board of Governors of the Federal Reserve, 2019.12.23].
That’s not propaganda; that’s plain analysis of the data before us. The net effects of Trump’s tariffs are the opposite of what he promised but exactly what history predicted: higher costs and fewer jobs in U.S. manufacturing. Well done, Mr. Hoover.