Trump's latest move could be a sign of looming economic pain
- President Donald Trump's administration announced tariffs on solar panels and washing machines on Monday.
- Some companies already responded to the tariffs, such as Whirlpool, which announced it would add 200 jobs.
- While the potential benefits are easy to see, the much more significant downsides are less obvious.
President Donald Trump announced a one-two punch of tariffs Monday - one on imported solar cells and panels, and another on imported washing machines.
The moves delivered on Trump's campaign-era protectionist trade promises, and the White House touted them as a way to defend US manufacturers and jobs. But economists say that while Trump could claim some benefits from their implementation, the tariffs could end up causing unforeseen complications.
"I like to think of tariffs as smart but dumb," Neil Dutta, the head of US economic research at Renaissance Macro, wrote Tuesday. "The benefits are very concentrated and visible while the costs are widespread and harder to spot."
The early victories are already starting to roll in. Late Monday, the Michigan-based washing machine manufacturer Whirlpool announced the addition of 200 new jobs in Ohio.
"By enforcing our existing trade laws, President Trump has ensured American workers will compete on a level playing field with their foreign counterparts, enabled new manufacturing jobs here in America and will usher in a new era of innovation for consumers everywhere," Whirlpool CEO Jeff Fetting said in a statement.
Dutta said, however, that while those workers could benefit, the costs of tariffs are more far-flung with the consumers who will end up buying the affected products.
"The President can point to an article like this showing job growth in the wake of the tariff but the costs will be more spread out among consumers," Dutta said.
Economic problems
Trump's focus during trade negotiations has been squarely planted on the trade deficit, the net difference between the country's imports and exports. He has argued that the US's wide trade deficit represents a serious blow to the economy.
Narrowing that deficit can be accomplished through tariffs. But economists say they can be damaging to consumers.
The cost of solar cells and washing machines, for instance, could rise and disrupt supply chains, causing short-term economic drags in those industries. But since the effects could be spread out, the price increases could be difficult to see from a consumer's perspective.
Gregory Daco, the chief US economist at Oxford Economics, said the tariffs indicate a policy stance that could put the Trump administration on a economically damaging policy path.
"Focusing on the trade deficit is not the best approach," Daco said in an email on Tuesday. "While the imposition of tariffs may be viewed as 'wins' by the administration, they will end up hurting the US economy via higher import prices and potential retaliation from trading partners."
The downsides are two-fold, economists say: Higher barriers to trade make it more expensive to produce goods, hitting consumers and increasing inflation. In turn, that could cause a sped-up pace of tightening from the Federal Reserve and dampen economic growth.
Tit-for-tat tariffs?
Tariffs can also incur more acute costs: The Solar Energy Industries Association has estimated the new policy will cost 23,000 US jobs.
But economists say the losses will be spread out among many parts of the the cost chain at different companies, so the cuts won't be as splashy as the addition of new jobs.
Dutta said the washing machine tariff - at least on the macroeconomic scale - is "small potatoes" and won't contribute much to inflation.
But given the action and the president's itch for tariffs, it's not a stretch to think more moves could be coming soon.
"I do think that the US administration feels emboldened by the passage of the Tax Cuts and Jobs Act, and that as a result it is likely to pull harder on the protectionist lever," Daco said. "There is a lingering desire to reduce the trade deficit, and the President will want to deliver some trade 'wins' to his base before the midterms."