The tariffs really are not helping anything at all
Ronald Reagan famously said that the most frightening words in the English language are: “I’m from the government, and I’m here to help.”
U.S. manufacturers must know exactly what the Gipper meant.
Donald Trump is a whole-heartedly pro-manufacturing president, and he’s definitely here to help — with a dizzying array of tariffs.
So far the evidence is that, on net, his tariff agenda is not helping, and almost certainly hurting, the manufacturing sector he’s out to rejuvenate.
The September jobs report was pretty good overall, but manufacturing continues to be a sore point. The U.S. has shed nearly 100,000 manufacturing jobs over the last 12 months, and blue-collar jobs are declining.
The theory of the tariffs is that American manufacturing has been decimated by imports and if the imports are made more expensive by tariffs, people will buy more American-made products and companies will bring manufacturing operations back to the United States.
The problem is that this story is overly simplistic. As the researchers Gary Clyde Hufbauer and Ye Zhang point out, this is driven, to a large extent, by the fact that as people get richer, they tend to spend more of their income on services, whether health or entertainment.
This suggests that seeking a return to a bygone era of manufacturing through tariffs is the economic equivalent of King Canute and the waves (which wouldn’t recede despite his command). Worse, sweeping tariffs make imported materials that are used to manufacture goods in the U.S. — so-called inputs — more expensive. As a result, manufacturing becomes less cost-effective.
Then, there’s the downside that U.S. tariffs cause foreign retaliation, harming U.S. manufacturers that export their products.
Finally, when uncertainty is layered on top of this — about when and if tariffs will come into effect and for how long — it’s a truly toxic brew.
There’s a reason that the National Association of Manufacturers — a group that one would expect to support any policy designed to assist manufacturing — doesn’t like the tariffs.
An Institute for Supply Management survey found that in October the manufacturing sector contracted for the eighth consecutive month.
The respondents to the survey, who are executives of manufacturing firms, frequently mention the tariffs as a cause of distress.
“Tariffs continue to be a large impact to our business,” one respondent in the machinery category explained. “The products we import are not readily manufactured in the U.S., so attempts to reshore have been unsuccessful.”
A survey of Texas businesses by the Dallas Federal Reserve found the same thing. About half of businesses reported negative effects from the tariffs, and only 2% positive.
The Trump administration has backed off tariffs on coffee and various food items, an implicit concession that they were a mistake and led to higher prices. It’s probably too much to ask that the administration acknowledge the deleterious effect on many manufacturers.
These companies will have to endure the economic drag created by a government that wants to help.
