How Successful Were Trump's Tariffs?

Mish

Trump justified tariffs on the grounds they would create jobs, improve security, and give the US leverage to make better trade deals.

How Successful Were' Trump's Tariffs?

Please consider Did Trump’s tariffs benefit American workers and national security?

Job Creation Key Points

Trump’s tariffs have helped some workers and hurt others. Nothing is particularly surprising about this; trade policy almost always has important distributive effects, and any change in trade policy is a choice to benefit some groups at the expense of others.

Overall, when economists have attempted to add up the net effect of Trump’s tariffs on jobs, any gains in importing-competing sectors appear to have been more than offset by losses in industries that use imported inputs and face retaliation on their foreign exports.

Even those jobs that have been created have come at great cost: studies suggest American consumers paid about $817,000 in higher prices attributable to the tariffs for every job created in the washing machine industry and $900,000 in the steel industry. While policy interventions to support manufacturing jobs may be warranted, there are cheaper ways to do so.

Negotiation Leverage Key Points

When we look in closer detail at the outcome of these negotiations [USMCA and China], the threat of tariffs does not appear to have brought substantial gains to the U.S. 

The USMCA is, in general, very similar to NAFTA. And the Phase One trade deal consisted mostly of basic purchase agreements—which, due in part to the COVID-19 shutdown, are extremely unlikely to be attained—while punting the trickier, but more important, structural questions to a hypothetical Phase Two deal (which at this point seems unlikely to ever occur).

Tariffs may get other countries’ attention, but don’t necessarily lead them to make substantial concessions to U.S. demands. Trump’s eagerness to resort to tariffs, including in relations with close allies, has made the U.S. a less desirable trade partner for other countries.

Improve Security

The Trump administration imposed tariffs on steel and aluminum imports on the basis of national security reviews (known as Section 232 investigations), and threatened to do so for automobiles, uranium, and titanium. 

Evaluating the impact of trade policy on national security is difficult. The national security case for tariffs on steel and aluminum is even murkier: while there may be a case for ensuring domestic production capacity for these commodities, it isn’t clear tariffs are the best instrument (or that they even achieve this goal).

These tariffs antagonized many of America’s closest security partners, particularly Canada, which undermined efforts to cultivate a broader multilateral alliance to challenge China. Moreover, the Trump administration’s frequent recourses to national security on flimsy grounds will make it more difficult for the U.S. to push back when other countries cloak protectionism in tenuous appeals to national security.

Summation

  • Job Creation: On average, Trump's tariffs destroyed jobs. But there were some winners and losers notably steel. The cost of the "winners" was $800,000 to $900,000 per job created. More jobs were lost elsewhere.
  • Negotiation Leverage: Nonexistent. Trump resorts to threats so often on the flimsiest of grounds creates mistrust.
  • Improve Security: No. Antagonizing allies never improves security. 

And a key point the article missed is that Trump was willing to trade away security concerns for the flimsiest of things. 

For example, Trump labeled Huawei 5G technology a security threat. Then he made a deal with China if they would buy more soybeans.

Either this is outright crazy or Huawei was not really a security threat.

If Biden Wins

If Joe Biden wins, he will likely seek to reverse some of Trump’s more protectionist pushes. In particular, Biden will seek to repair trade relations with allies in North America and Europe, and to work through established channels such as the World Trade Organization (WTO). Yet he appears unlikely to simply return to the trade paradigm of the Clinton, George W. Bush, and Obama administrations. Several Democratic trade policy advisors have argued that Biden should break with earlier, more pro-corporate approaches to trade. For example, Biden’s trade policy would likely have greater emphasis on labor and environmental concerns than in previous administrations. Biden has promised his administration “won’t enter into any new trade agreements until we’ve made major investments here at home, in our workers and our communities” and advocated for a strong Buy American procurement policy. He has sharply criticized Trump’s tariffs on China, but it’s not clear if his administration would maintain them or not. Either way, a Biden administration would almost certainly adopt a more confrontational trade policy with China than Clinton, Bush, and Obama did.

If Trump Wins

Over the course of the last three and a half years many of the advisors and officials who restrained Trump’s protectionism have left office, tilting the balance in favor of bolder, more radical policy options. This dynamic would likely extend during a second term, which suggests the Trump administration might be more likely to follow through on some of his more extreme ideas. These include withdrawing from the WTO (though to be sure, this idea would still face strong resistance) and provoking further trade fights with allies such as Europe, Canada, Mexico, and Japan. In a second term, the guardrails that kept Trump’s trade policies from deviating too far from established approaches would further erode, opening the door to more radical changes.

Three Failures vs the Unknown

Trump miserably failed on all three of his stated goals. 

Biden rates to do better, but so would a rock.

Mish

Comments (32)
No. 1-14
Sechel
Sechel

Trump's tariffs have been very successful at angering our trading partners. I don't see that they accomplished very much except frustrated business and introduce uncertainty. Trump's carousel tariffs have kept Europe and China in a guessing game not knowing where the next tariff will be next or for how much. It does excite Trump's base.

Banning businesses like Huwei and Tiktok is just the next step for Trump who has succeeded in making this more a political calculation than a trade and economic one.

It seems that rhetoric over Tiktok increased immediately after a bunch of k-pop users got one over on Trump booking up his campaign rally and not attending.

I'd say you are spot on that consumer prices are up because of this nuttiness and that we've simply favored those industries that produce raw materials vs those that purchase and engage in value added production.

Regardless of whether we get another four years of Trump or get Biden we'll be seeing economic nationalism on the scene for some time. Perhaps less with Biden but both candidates are talking about shifting the the import vs export arithmetic.

Quatloo
Quatloo

There really isn’t much daylight between Trump and Bernie Sanders on trade policy. Both abhored NAFTA and love tariffs on foreign goods. They both hate free trade.

Eddie_T
Eddie_T

Trumps strong-arm tactics with Tim Cook should probably be considered to have delivered a win for our local and state economy in Texas. I don't think Apple would be building a huge new campus here if Trump hadn't come after Cook to put more production back in the US. Austin is the beneficiary of that.

That's about the only bright spot I can see.

I look for Biden to give some lip service to more US-centric trade policies, but the corporate world benefits from globalism, and therefore globalism will not go away.

FactsonJoe
FactsonJoe

Is the reasonable time horizon a few years or tens of years?

If the time horizon is tens of years and Trump is re-elected and it is clear that what Trump started will continue then I believe the tariffs will eventually work and China will either make a deal that is good enough for both or manufacturing will start to return even without a deal.

Companies do not make long-term strategy decisions based on blips and the free trade obsession/cult for free trade at all cost has been going on for 30 years and on booster rockets for 20 years since Clinton/Bush (process started under Clinton, completed by Bush) allowed China to join WTO.

dr smock
dr smock

While selling us products that we use to make, what does China import from the US? Thanks to our bought politicians influence in admitting China to the WTO in 2001, not much. They use to buy our soybeans and pork before the tariffs made them angry. Meanwhile, our workers who had those jobs that were outsourced by "our corporations" and that could support a family are rioting because of poverty level jobs. I bought some over the counter medication recently and noticed the price had almost doubled. They were imported from Japan because with the tariffs on Chinese medications, they were cheaper. We don't even manufacture our own medication anymore. China's trade surplus is still going up dramatically with us and they don't buy our debt anymore, but rather our companies, our homes, our farms, and other tangibles. That is not free trade. Those Chinese trade surpluses paid for our wars in the middle east. Has anyone noticed that except for oil, the price of commodities are still going up this year, some to record highs.

FactsonJoe
FactsonJoe

Mish, are you thinking about ZTE which Trump banned but then reversed the ban later to get the negotiations going on the Phase1 deal with China when you mention Huawei?

ZTE was banned because they were selling their products to Iran and North Korea but then Trump reversed the ban and ZTE paid 1 billion dollar fine and are not banned otherwise in US but only have a ban on US government contracts.

To my understanding the bans against Huawei are ongoing and Google has removed Huawei's Android license globally so no new Huawei phones can be made with Android as the phone's OS but old phones still get Android updates.
Huawei is developing their own OS and AppStore since no access to Google's Android and PlayStore.

Also Huawei has been banned from using chips in it's phones that are made by American partners like South-Korea and Japan and there are some bans on using US patented tech by Huawei to my understanding.

Also Canada and UK have banned Huawei 5G installations in their networks in addition to USA (phones and 5G solutions banned in USA but UK and Canada allow Huawei phones) and India has banned Huawei phones and 5G network equipment.

There was also some pressure from USA to Nokia(Finland) and Ericsson (Sweden) to merge to enable them to compete with Huawei since Huawei for now has slightly more advanced 5G tech (more cost-effective due to building more functions cheaper into their 5G solution, tech-wise Nokia and Ericsson can perform the same but the cost of the system is higher than with Huawei system).

The Huawei 5G advantage is likely partly caused by them selling 5G solutions below cost (would need to see their accounting to know for sure, if chinese accounting can be trusted) to win marketshare and get Huawei as the solution for 5G as widely as possible while funding this with the profits from Huawei phones.

Nokia and Ericsson have to make a profit from their Telecom network and 5G solutions whereas for Huawei it seems to be a case of build marketshare and Chinese influence and do not care about profits from 5G since phones bring enough profit to fund it all.

Nokia and Ericsson were not pleased with the pressure and have stayed as independent companies which is good since more competition brings better products and they will probably achieve Huawei level soon but not the price since China was likely doing with Huawei what it was doing with steel and solar panels aka dump product below cost to bankrupt competition in Europe/USA and get a commanding marketshare.

FactsonJoe
FactsonJoe

The article you quoted is quite biased since it states:

"provoking further trade fights with allies such as Europe, Canada, Mexico, and Japan"

Mexico: USA and Mexico have ratified USMCA
Canada: USA and Canada have ratified USMCA
Japan: USA and Japan have ratified a new FREE trade agreement that began to be in force 1st of January 2020

Augustthegreat
Augustthegreat

tRump is a serial bankruptcy maker who has bankrupted 6 companies one after another. Then americans handled the whole country to him, expecting that he would make miracle. Can someone explain to me what insanity means?

Webej
Webej

If that's Biden's trade policy, I sure would love to hear him articulate and explain it...

Sechel
Sechel

evidence would suggest we haven't hurt china all that much GDP still increasing as well as their trade surplus. if trump has a goal of reversing that he's failed

Herkie
Herkie

The only metric I accept as valid is how many full time workers were there when he took office in 2017 (127 million) and how many there are right now:

Full-time employees - unadjusted monthly number in the U.S. August 2020. As of August 2020, there were 123.62 million full-time employees in the United States.Sep 8, 2020

Keeping in mind that the labor pool for working aged people has expanded by between 2 and 3 million per year. And don't give me pandemic makes the numbers useless BS, because he mishandled the pandemic and also had Trump policies on the economy/trade war been any good at all we would have weathered the storm of Covid with more jobs intact. Because there would have been many more employed to start with. But his policies COST workers good full-time middle class jobs, and as it is those are not coming back without serious reform of American capitalism, instead the multinationals will simply have to find other low wage places to serve as our supply chain.

CCBW
CCBW

This was in response to Herkie but I thought I'd post it also thank you.
Well let’s look were employment a year ago August of 2019.According to

https://www.statista.com/statistics/192361/unadjusted-monthly-number-of-full-time-employees-in-the-s/#:~:text=Full%2Dtime%20employees%20%2D%20unadjusted%20monthly%20number%20in%20the%20U.S.%20August%202020&text=As%20of%20August%202020%2C%20there,132.16%20million%20full%2Dtime%20employees.

and this quote is from that article.
“As of August 2020, there were 123.62 million full-time employees in the United States. This is a significant decrease from August 2019, when there were 132.16 million full-time employees. As of August 2020, there were 123.62 million full-time employees in the United States. This is a significant decrease from August 2019, when there were 132.16 million full-time employees. “
From March to April of 2020 we lost over 14 million full time jobs to Covid 19 in one month. But Biden been much better there would be no deaths from Covid 19 because he wouldn't let it. I guess he would stand no the west coast raised his hands and said stop and of course it would have.