Federal Reserve says Trump’s tariffs have so far hurt more than helped

US aluminum producers have seen their costs rise thanks to the tariffs.
US aluminum producers have seen their costs rise thanks to the tariffs.
Image: Reuters/Bryan Woolston
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US president Donald Trump’s tariffs appear to have hurt US manufacturing more than they’ve helped it, according to a study by the US Federal Reserve Board released this week.

The paper, which the authors call the first comprehensive estimates (pdf) of the tariffs’ effects on manufacturing, concluded that the tariffs led to fewer jobs in the sector, as their negative effects outweighed the benefits. Manufacturers were supposed to get a boost from the protection against practices by US trading partners Trump has deemed unfair. Instead they were hampered by rising costs and retaliatory tariffs.

To figure out the tariffs’ ultimate net benefit or cost, the study weighed three different measures: the protection US manufacturers got against foreign imports, the additional costs of materials they need to import to make their goods, and how much retaliatory tariffs reduced their competitiveness in the markets they export to.

Different industries felt the effects to varying degrees. Producers of aluminum, electrical lighting equipment, furniture and cabinets, semiconductors, and iron and steel enjoyed the greatest protections against imports. Meanwhile, among those hardest hit by their reduced competitiveness overseas were producers of magnetic and optical media, leather goods, aluminum sheet, iron and steel, and automakers.

Manufacturers working with aluminum and steel also saw their prices rise the most. According to the paper, the new tariffs accounted for 17.6% of costs for makers of aluminum sheet, and 8.4% of the costs for steel products manufactured from purchased steel. In some cases they found the rise in prices far outweighed any competitive edge the industry received.

In fact, weighing all factors together, the authors wrote, “We find the impact from the traditional import protection channel is completely offset in the short-run by reduced competitiveness from retaliation and higher costs in downstream industries.” Notably, the industries most exposed to the tariff increases saw relative declines in employment.

One factor the paper did not look at was the uncertainty created by the tariffs. Experts have blamed that uncertainty for the country’s slowing growth.

The authors also acknowledge they can’t say what the long-term consequences of the tariffs will be. They could differ from the results so far. For now, however, “the results indicate that the tariffs, thus far, have not led to increased activity in the US manufacturing sector,” they write.

They say the results offer lessons on tariffs as a trade policy tool, as well: Their effectiveness at boosting domestic manufacturing isn’t so straightforward in a world of globally interconnnected supply chains.