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Tariffs Not Helping U.S. Manufacturing Sector, Report Says

Monday, January 06, 2020
Sandler, Travis & Rosenberg Trade Report

The Trump administration’s import tariff increases have been a drag on U.S. manufacturing employment and have failed to increase the sector’s output, according to a recent Federal Reserve Board report.

Part of the purpose of the tariffs is to boost the U.S. manufacturing sector by protecting it against what have been deemed the unfair trade practices of trading partners, principally China. Achieving this goal could be seen as a justification for the negative consequences the tariff increases have had on the broad economy, the report states, including higher prices, lower consumption, reduced business investment, and drops in the valuations of affected items.

However, the report concludes that the higher tariffs are associated with reductions in manufacturing employment and increases in producer prices, which have contributed to a noticeable decline in manufacturing output since the end of 2018. For employment, a small boost from the import protection effect of the tariffs has been more than offset by larger drags from the effects of rising input costs and retaliatory tariffs imposed by U.S. trading partners. For producer prices, the effect of tariffs is mediated solely through rising input costs.

The report acknowledges that there could be a more substantial expansion of U.S. manufacturing activity in the longer term as firms fully adjust their supply chains to avoid the tariffs. However, the report states that there is “suggestive evidence” that manufacturing activity priced out of China by the tariffs is more likely to relocate to other East Asian countries than the U.S.

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