Tariffs Hurt U.S. Manufacturing, New Fed Report
The Federal Reserve Board has come out with a new report noting the effects of the 2018-2019 tariffs on U.S. manufacturing. The main finding is U.S. industries may experience relative reductions in employment as a positive effect, but that is offset by larger negative effects from rising input costs and retaliatory tariffs. “Higher tariffs are also associated with relative increases in producer prices via rising input costs,” the report says.
The report, released on Dec. 23, notes a greater attention is being paid to the economic effects of tariffs after the unprecedented increase of tariffs from the United States against its major trade partners during 2018 and 2019. What makes the issue even more complicated is the “rapid expansion of globally interconnected supply chains,” which can multiply the impacts of tariffs.
“On the one hand, U.S. import tariffs may protect some U.S.-based manufacturers from import competition in the domestic market, allowing them to gain market share at the expense of foreign competitors,” the Fed says. “On the other hand, U.S. tariffs have also been imposed on intermediate inputs, and the associated increase in costs may hurt U.S. manufacturers’ competitiveness in producing for both the export and domestic markets. Moreover, U.S. trade partners have imposed retaliatory tariffs on U.S. exports of certain goods, which could again put U.S. firms at a disadvantage in those markets, relative to their foreign competitors. Disentangling the effects of these three channels and determining which effect dominates is an empirical question of critical importance.”