By Max Gulker and Peter C. Earle of the American Institute for Economic Research.
"This is the executive summary of the AIER report “The Trade War: A One-Year Assessment.” Read the full report here.
“I am a Tariff Man,”
tweeted
President Donald J. Trump on December 4, 2018, putting a strange
exclamation point on a year in which the President followed through on
the protectionist rhetoric he cultivated since the 2016 campaign. Making
good on this campaign promise, however, harmed virtually all Americans
while failing to positively impact the industries supposedly being
protected.
President Trump’s aggressive use of tariffs
in 2018 made clear that he did not view international trade through the
lens of commerce, where thousands or even millions of individuals and
firms do business. Instead, world trade was about negotiation, with
world leaders using carrots and sticks to regulate commerce between
their citizens and the strongest and shrewdest leaders coming out on
top.
Anyone who maintains that a $75 billion income tax
cut helps the economy must also agree that a tariff hike of $45 billion
or more must harm the economy. This study looks back on the
unprecedented developments in international trade that happened in 2018.
While
economists across the political spectrum often disagree on the most
fundamental policy questions, they almost uniformly oppose
protectionism. At the time of this writing in March 2019, the data
showing the damage this trade war has done are starting to come in.
Amiti et al (2019)
report statistical evidence that the 2018 tariffs and retaliatory
measures taken by U.S. trading partners have increased both input and
final consumer prices, disrupted global supply chains, and resulted in
deadweight loss of billions of dollars over and above the tens of
billions of dollars in new taxes filling government coffers.
Fajgelbaum et al (2019) reach similar conclusions about the volume of global trade and losses to the U.S. economy.
We
take a higher-level view to understand in the most basic terms the
mechanisms by which the 2018 tariffs have directly harmed American
consumers and firms. After a summary of the actions taken by the Trump
Administration and foreign governments in retaliation, we turn to what
has been lost due to the tariffs, and what if anything has been gained.
We find that:
The
2018 tariffs directly claw back a quarter or more of the savings
American households and firms realized from the 2017 cuts in individual
and corporate tax rates.
U.S. importers passed a large portion of the new tax burden they directly faced onto consumers.
While
protectionists claim that tariffs are necessary to shield important
domestic industries from competition, data from the steel and aluminum
industries provide no evidence that these sectors have realized any
gains.
Tariffs are sometimes politically
easier to swallow than other tax increases because the costs seem
indirect and diluted throughout the economy while the supposed benefits
seem more direct and carry a degree of sympathy. Our analysis shows that
this intuition is flat wrong. Tariffs cost American households and
firms billions, and fail to provide help to ailing industries promised
by their proponents."
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