Trump's tariffs are driving job losses and production cost hikes, the Fed says
- President Trump's tariffs are harming the sector he pledged in 2016 to protect, according to a recent Federal Reserve study.
- The president's 2018 tariffs fueled job loss throughout the ailing manufacturing industry and increased input costs, the December 23 study said.
- The duties did provide some import protection to US-based firms, but any benefits were outweighed by boosted production expenses and retaliatory tariffs, the Fed added.
- The findings come as the US manufacturing sector remains mired in recession and a separate report says 2019 brought the most job cuts in four years.
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President Trump's tariffs are harming the very companies he pledged to protect, as a recent Federal Reserve study highlights the negative effects of the president's trade policy.
Trump has levied tariffs on hundreds of billions of dollars worth of imports from Asia, Latin America and Europe. The president's trade war with China led the nation to fire back with retaliatory tariffs, and while a phase-one deal is scheduled to be signed January 15, the conflict still weighs on both economic superpowers.
The Fed study, published December 23, explains how tariffs implemented in 2018 fueled job loss and increased input costs across US manufacturers. While the duties did provide some benefits to domestic firms, the negative effects outweighed the positive ones and harmed an already-ailing sector, the Fed wrote.
"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," authors Aaron Flaaen and Justin Pierce wrote. "For producer prices, the effect of tariffs is mediated solely through rising input costs."
The central bank noted that global supply chains also complicate the traditional utility of tariffs and other trade policy tools. The typical benefit of import protection fades away in today's global economy, according to the Fed, since reduced competition and higher production costs present greater harm in the short term.
The US-China trade war and a prolonged shift to the gig economy presented a double-threat to manufacturing companies in 2019. The sector has been mired in recession since August, and sank lower in November as new orders and employment dropped faster than before, according to the Institute for Supply Management.
Trump won over factory-heavy states in 2016 by promising to revive the lagging sector, and claimed his tariffs would give manufacturers a leg-up against their foreign competitors. The Fed's study counters the president's pledge, noting that the tariffs haven't provided assistance to the contracting industry.
"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 US manufacturing sector," the report's authors wrote.
The tariffs likely played a role in making 2019 one of the decade's worst years for job cuts. A Thursday report from Challenger, Gray & Christmas Inc. found the 12-month period brought the most US job cuts in four years, despite the economy maintaining a historically low unemployment rate. Trade concerns were among the most cited reasons for slashing roles, the firm's vice president said.
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