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Smoot-Hawley Days Are Here Again: Tariffs Raise Costs and Kill Manufacturing Jobs

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:

Dow Jones Nov 2007-Dec 2019
Dow Jones Nov 2007-Dec 2019, from Yahoo Finance, 2019.12.29.
S&P 500 Nov 2007-Dec 2019, from Yahoo Finance, 2019.12.29.
S&P 500 Nov 2007-Dec 2019, from Yahoo Finance, 2019.12.29.

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.


  1. Gayle 2019-12-29 13:35

    If you ignore history, you’re doomed to repeat it. Smoot Hawley contributed to the Great Depression. Trump has no idea what he’s doing because he has no interest in history or people who know it, and could advise him. It’s frightening that people in his cult never question what he does or says. I’m hoping we don’t have to go through another Great Depression for those in his cult to figure out that they’re being conned by a master con artist.

  2. jerry 2019-12-29 19:39

    Great post Cory, and couldn’t be more timely or more spot on. Chubby’s boys know full well this balloon is gonna pop. They have been juicing the the numbers for some time now. When do you think would be a good idea to let the public in on the bust?

    “On December 12, the New York Fed upped the ante. It announced that over the next month it would shower the trading houses (primary dealers) on Wall Street with a cumulative total of $2.93 trillion in short-term loans.

    Now Wall Street has made it clear what the cheap money is being used for. It’s not being loaned out to help the general economy – it’s being used to push the stock market to record highs each day.”

    Jamie Dimon just made a cool 250 million sitting on his moneyed arse. How much did you make on December 12? White Men Can’t Jump, but they can sure screw you on the grift.

    Obama has left the building, so the only Democrat I see that knows arithmetic, is Elizabeth Warren. That same Warren that scares the hell out of the Wall Street con’s robbing their own banks.

  3. Debbo 2019-12-29 21:00

    Very good post Cory, and Jerry’s comment and link is excellent.

    The stock market’s movement is purely artificial due to government prop up. I’ve been reading more and more about how little effect the stock market actually has on a large majority of Americans.

    Another example of the Economy of the Rich.

  4. jerry 2019-12-30 09:57

    “Farmers as a whole keep expecting their farm income to be better than what it turns out to be,” said Robert Dinterman, an agricultural economist at Ohio State University who constructed the farm-bankruptcy database we analyzed in this story. So, he added, “each year farmers are digging themselves in a larger and larger hole — they’re accumulating more debt than they’re able to pay off.”

    “I don’t think there’s any reason to think there’s going to be any relief in the future,” Dinterman said. Only a dramatic new round of government payments or an emphatic resolution to Trump’s ongoing trade wars could change in the industry’s trajectory, he said.

    Overall, the growth in farm debts has outstripped farmers’ stagnant equity stakes, leaving them at higher risk of insolvency than they have seen at any point since the end of the Great Recession. It’s compounded by an unwelcome mix of lackluster prices for corn and soybeans on the open market and low yields caused by extreme weather.”
    Washington Post 12/29/19

    Nationalize agriculture to make it sustainable. Provide salaried positions like Mayo Hospital does for their doctors. In order to expect a better income, you must have an income that is without debt. Farmers should get a check for work done as efficiently as possible by working the fields.

  5. Debbo 2019-12-30 14:08

    Jwrry, how about if, rather than nationalization, which has a very poor record in ag, we forbid the vertical integration that plagues farming? That would allow more genuine market forces to act.

    I think it would be good to stop vertical integration in every industry. Am I wrong?

  6. Debbo 2019-12-30 15:00

    Mike Allen in Axios has good news and bad news. The total number of people worldwide who are desperately poor has decreased. Good.

    The number of billionaires has skyrocketed along with $ inequality. Bad.

  7. jerry 2019-12-30 17:09

    I was thinking more of soil banks from remembering the days of my youth. More clean water and more cover for game. Farmers could get a real pay check for the work they are doing, just like the doctors do at Mayo Clinic. I’m not talking about minimum wage for the producer either, but real compensation for the care and production of the land.

    As the implements are proprietary to fix, then the upkeep on these machines would go to professional services that would be paid directly from the manufacturer and then billed to the federal government. The professional mechanics would be paid as the professionals they are.

    The producer has no say whatsoever in the sale of their product and as we know, a tariff or some other monkey shine, can break them. Let the government be the broker and be the integrated system that changes the corrupted way we engage with ag production now. Instead of having 4 national livestock conglomerates, have regional ones that start straight away from the sale barn, in one door and out the other for finishing. Artificial intelligence could run the show,so that intelligent workers could manage the day to day on the farm or ranch…also through Artificial Intelligence programs. 5G could put it all together.

  8. Cory Allen Heidelberger Post author | 2019-12-31 06:46

    Interesting that the stock market climb may be an illusion, gains propped up by unsustainable government loans. There has to be some explanation.

    Thinking about Gayle’s comment about the Depression and Trump’s utter heedlessness of history… I wonder if the tariffs haven’t triggered a Depression yet because (a) the Obama economy was stronger than the Harding-Coolidge economy, giving Trump more room for recklessness than Hoover had, and (b) we’re better at avoiding Depressions now thanks to smarter monetary policy. Is the Fed saving us from disaster?

  9. Cory Allen Heidelberger Post author | 2019-12-31 06:56

    Jerry’s info paints a grim picture of farmers as… what, addicted gamblers, unable to see they are losing in a game rigged by the house and pull away from the table? Boxer in Animal Farm, unable to recognize the failure of the system and insisting that everything will be fine if they just work harder?

  10. Debbo 2019-12-31 14:20

    While we’re talking about how farmers can or cannot eke out a living, Mnuchin and the rest of the Greedy Rich Bastards figured out how to scam even greater $$$,$$$,$$$,$$$ out of the GOP/Economic Oaf tax giveaway.

    “Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits… Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.”

    NY Times via National Memo

  11. jerry 2019-12-31 17:18

    Chubby’s market will now soar for a day, then back to a big drop because there is nothing here new to report. Just the same old word salad that means nothing. Ask yourself how this news changes anything. Maybe China will buy something or maybe not.

    “President Donald Trump said Tuesday that he plans to sign a preliminary trade deal with China on Jan. 15 in Washington and will travel to Beijing later in 2020 to begin talks on a phase two agreement.

    “I will be signing our very large and comprehensive Phase One Trade Deal with China on January 15,” Trump wrote on Twitter. “The ceremony will take place at the White House. High level representatives of China will be present. At a later date I will be going to Beijing where talks will begin on Phase Two!””

  12. Debbo 2019-12-31 17:36

    Jerry, the key will be what the agreement actually says, which will probably be far different from Economic Oaf’s blathering lies. Of course we all know that.

  13. jerry 2019-12-31 19:48

    No agreement exists, only Chubby blathering more lies. We, the American people, lap that crap up because we’re used to being lied to. Take a look at what’s going on in Baghdad, our billion dollar embassy is on fire. Look hard to see what’s been going on there for the last few months, Americans don’t want to read about that because of holiday shopping don’t ya know.

    Nope, Chubby lies, and so do the senators from South Dakota to protect the lies. The agreement doesn’t exist. Oh, and that includes little Dirty as well. Take whatever they say, and then look exactly the opposite, as that is what the truth is.

    Hide and watch, there will be nothing gained from all of this, only what has been lost in the cost to this nation, and all, just to seat corrupted judges. We’re all much poorer because of this.

    Welcome to 2020, just the word, there is no vision, we’re with the bifocals. Putin has won and ya gotta admit, he did one helluva job that’s still being successful today.

  14. jerry 2019-12-31 20:04

    News from China says this

    The text of the agreement has not yet been made public pending legal and translation reviews, US officials say, and details remain scant.

    US and Chinese officials said the agreement includes protections for intellectual property, food and farm goods, financial services and foreign exchange, and a provision for dispute resolution.

    Other apparent Washington-Beijing agreements have evaporated before, but US officials have said this time both sides are really on the same page.” Sure they are…Gwhahahaa, Lucy is gonna lift the football Charlie Brown

    Wanna see who actually is doing well with the new Chubby Smoot-Hawley? Guess who, our neighbor to the south.

    “Plastics company Fuling Global Inc. announced its plans to move its operations from China to Mexico, investing US$2 million dollars on a new facility in Monterrey, in the northeast of the country. The company started producing paper straws and paper cups for the US market in 2019.

    “The ongoing US-China trade tensions cast uncertainties for our export business to the US market, our largest segment,” Guilan Jiang, Chairwoman of Fuling Global, warned last year in a press release. “The Mexico Factory offers certain attractive benefits for us, including zero tariff on trade between the US and Mexico as well as low labour and transportation costs.” Chubby and crew are in over their heads so we need to give more money to Wall Street banks, yeah, that’s the ticket.

    Maybe in 2020 someone should politely ask our senators and the other guy, just what the hell are they doing. Naw, that would make too much sense and these guys…well they’re such good fellas.

  15. grudznick 2019-12-31 20:20

    Perhaps, Mr. jerry, the year of 2020 will become not the year of your boogieman, Mr. Trump, but the year of the elitist libbie’s imaginary hobgoblin du jour: grudznick.

    Let that be Mr. jerry’s prediction for the new year.

  16. mike from iowa 2020-01-09 18:26

    drumpf tweeted out he wanted to know how everyone’s 409Ks were performing. Even flummoxed John Roberts who is fluent in drumpf argle bargle. Gawd, we are dooooooomed.

  17. Debbo 2020-02-15 14:28

    From Mike’s excellent link:

    “By October of last year, U.S. manufacturing had seen two consecutive quarters of contraction. The sector shed 5,000 jobs in December and 12,000 jobs in January. In December, the Institute of Supply Management’s manufacturing index displayed the fastest rate of contraction since June 2009. And although the ISM suggests an uptick may be on the horizon, the sector still lags behind most others.”

    I urge you to read it all.

  18. jerry 2020-02-15 17:37

    Oh, it gets worse. Check out this headline from the Washington Post on what our Fed
    Chairman says…Yikes

    “Why aren’t more Americans working? Fed Chair Powell says blame education and drugs, not welfare.
    ‘It isn’t better or more comfortable to be poor and on public benefits now, it’s actually worse than it was,’ Powell told U.S. senators this week.”

    The article goes on about what the heck is going on.

    ““The spirit of what the Fed chair was saying is you can’t blame lagging or declining labor force participation on the welfare benefit system,” said Matt Weidinger, the Rowe fellow in poverty studies at the right-leaning American Enterprise Institute. “Benefits really haven’t been growing. What we have been doing is subsidizing people who go to work.” Washington Post 2.15.20

    Smoot- Hawley is alive and well.

  19. jerry 2020-02-15 19:50

    The great Chubby trump economy is just fine if you have a couple or three jobs, never had it so good when you work 80 to 120 hours a week. Damn, at this rate, you should be so happy you look for that 4th job in the gig economy. But if you’re in the middle class, you’re getting screwed like these railroad workers.

    ““When you go to work now, it’s like going into a funeral home,” Hollandsworth said. “What three people used to do, one person is doing now.”

    While the U.S. economy overall is growing moderately, the railroad industry is a cautionary sign of the ongoing pain in the industrial sector and the deep structural changes underway in the economy that are eliminating middle-class jobs.

    President Trump’s trade war has hit agriculture and manufacturing hard, causing lower demand for companies that move freight. But railroad stocks soared in 2019 after rail executives embraced automation and cost-cutting to remain profitable, doubling down on the idea that rail’s future entails longer, faster trains and fewer workers.

    More than 20,000 rail workers have lost their jobs in the past year, the biggest layoffs in rail since the Great Recession and a nearly 10 percent decline in rail employment, according to Labor Department data through November.”

    Good news though, these 20,000 rail workers are now working Uber or some other minimum job. Brother can you spare a dime?

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