Trump’s Trade War Was an Economic and Political Loss

The Biden administration should change course and embrace a more open and liberal international trade policy

By Robert Krol. He is an emeritus professor of economics at California State University, Northridge. Excerpts:

"international trade policy is not carried out in a vacuum. Countries first tried to negotiate exemptions from the tariffs on their exports. When that failed, they retaliated with their own tariffs on U.S. exports to their own countries. 

The result of the trade war was a net economic loss to the U.S. It was hardest on businesses and consumers that purchased imported goods."

"recent research has found that domestic prices on products subject to the tariffs actually rose by the full amount of the tariff. The reason for this result is still an open question. In the case of Chinese exporters, it appears that they were able to sell more of their product in markets outside the U.S., stabilizing the international price. Businesses may have increased demand in anticipation of higher future tariffs. Finally, long-term contracts may have kept the price from changing. Regardless of the cause, however, the bottom line is that American businesses and consumers ended up bearing the cost of the tariffs.

One study recently updated its calculations on the costs and net gain or loss from imposing the import tariff, factoring in the retaliation tariffs on U.S. products sold abroad during the trade war period (2018-19). It finds the average U.S. tariff increased from 3.7% to 25.8% for 17,495 products worth $420.6 billion (17.6% of total imports in 2017). The retaliatory tariffs on U.S. exports rose from 8.7% to 20.8% for 8,400 products worth $133.9 billion (8.7% of 2017 total exports). Given these significant increases in tariffs, it is not surprising that U.S. exports and imports declined.

The study not only calculates the increased cost to businesses and consumers from the tariff, but also computes the value of any net production effects that might have occurred because of the U.S. import tariff and foreign retaliatory tariffs. Finally, it calculates the tariff revenue raised by the government. For the 2018-19 period, consumers and businesses that purchased imported products paid $114.2 billion more for their purchases. In terms of production effects, output can increase in the protected industry, contract for downstream users of the protected products and decrease in the industries experiencing retaliatory tariffs. Accounting for these possibilities, net production gains equaled $24.3 billion, and tariff revenue equaled $65 billion. The net loss to the country—the $114.2 billion consumers paid, minus the net production gains and tariff revenue—was $24.9 billion. In other words, the country was made worse off because of the trade war. Consumers and businesses that purchase imported goods were hit the hardest by these policies.

Another recent study uses an economic-growth model to estimate the long-term effects of the trade war if the Trump trade policies were to continue in the Biden administration. In this scenario, U.S. GDP would be almost $60 billion lower, and employment (measured by full-time-equivalent jobs) would decline by 176,800. If our trading partners were to implement additional tariffs (that they have already announced), U.S. GDP would decrease by an additional roughly $10 billion, and another 30,000 full-time-equivalent jobs would be lost. The trade policies of the Trump administration negatively impacted many individual businesses and consumers. On net, these policies resulted in fewer jobs and lower incomes for Americans as a whole."