Leibowitz: Studies Evaluate the Impact of Trump Tariffs—Results are Not Attractive

President Trump promised to shake things up, and he has certainly done so. New studies on the economic impact of the Trump trade policies have proliferated in the last few weeks; supporters of China tariffs and Section 232 should be a bit nervous. 

By way of background, the steel and aluminum tariffs and quotas first took effect in March 2018, just 31 months ago. They have evolved; first by imposing tariffs on Canada, Mexico and the EU, quota agreements with Korea, Argentina and Brazil, then doubling tariffs on Turkey, then halving them again, removing tariffs on Canada and Mexico, then reimposing aluminum tariffs on Canada, then rescinding them. The back and forth of Section 232 is dizzying.

On the China trade front, four lists of tariffs cover most of what U.S. companies import from China. The tariffs on about $50 billion worth of imports from China first took effect in July 2018. More tariffs were imposed—first, $16 billion more in August 2018; then $200 billion worth of trade from China in September 2018, first at 10 percent and then 25 percent in early 2019 (List Three); and then more tariffs in September 2019 on even more trade (List 4A), first at 15 percent and then 7.5 percent, reduced as part of the “Phase One” deal with China early this year.

Exclusions from Section 232 tariffs and China tariffs reduce the impact of these trade restrictions, but it is hard to tell exactly how much. Those processes are different from one another in important ways. They have been criticized as arbitrary, secret and unfair; they have been challenged in court on several occasions, and a couple of cases have been settled by the government. But most of the cases are new and for the most part they remain undecided. 

The GAO (Government Accountability Office, an arm of Congress) published a report last month on the steel and aluminum exclusion processes, which found some rather serious glitches in those programs—uncertain rules, secrecy, delays and too much attention to the fact of objections rather than their merits. The government has not released any study on evaluation of the exclusions process under the China tariffs. 

Complaints about exclusions generally fall into two categories: (1) arbitrary decisions (generally failure to explain the decisions and lack of transparency about the process); and (2) the role played by domestic industry objections to requests. The process looks very much like government picking winners and losers, which is a traditional Republican complaint about government regulation. Now the shoe is on the other foot, since a Republican administration is picking the winners and losers. 

Exclusions have softened the blows from China and Section 232 trade restrictions but have not removed them—not by a long shot. The GAO study on exclusions estimates that about half of steel products nominally subject to Section 232 do not pay tariffs, largely due to exclusions and exemptions. But thousands of exclusion requests remain pending for months after they should be decided. 

There are tens of thousands of exclusion requests from steel and aluminum tariffs, in part because each company must file a new request, even if a request for the same product has been approved for another company. By contrast, there are fewer requests under the China procedures because approved exclusions may be used by any company that imports an excluded product. There is no explanation from the government about why the processes are so different. 

Turning to recent analyses of the impact of these tariffs, it is interesting to note that few if any analyses conclude that the trade restrictions help the U.S. economy on balance, or that exporters pay the tariffs. It is clear that Americans pay the tariffs—importers, U.S. manufacturers and, if market conditions permit, their customers.

Almost all of the recent studies conclude that the U.S. economy is hurt more than helped by the tariffs—a few workers in favored industries like steel production and aluminum smelting are helped, but at the expense of multitudes of companies and their workers faced with higher costs and import competition from foreign firms that do not have to pay tariffs because the products made from steel, aluminum and products made in China are transformed into non-covered products overseas. 

As an example, the Brookings Institution, a conservative-leaning think tank in Washington, comments that “any gains in importing-competing sectors [such as steel production] appear to have been more than offset by losses in industries that use imported inputs and face retaliation on their foreign exports.”  Brookings estimates that, for every steel job saved by tariffs, the cost to American consumers is $900,000, a multiple of a steelworker’s yearly salary (Brookings analysis, Sept. 10, 2020).  The Federal Reserve published a paper in December 2019 drawing similar conclusions: “We find that tariff increases enacted in 2018 are associated with relative reductions in manufacturing employment and relative increases in producer prices. In terms of manufacturing employment, rising input costs and retaliatory tariffs each contribute to the negative relationship, and the contribution from these channels more than offsets a small positive effect from import protection.”

So, the analytical consensus appears to be that the import restrictions do more to damage to the U.S. economy than to fix it. Of course, that is not the end of the story; other issues, like the long-term security of the United States, are certainly important.  But here again, the analyses suggest that the tariffs and quotas simply don’t provide enough incentive to encourage “reshoring” of manufacturing or to change the behavior of countries like China. In other words, what we are doing does not appear to be working—so we should be looking at other things to do. 

I invite readers to comment. 

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