Trump’s proposed tariffs on steel and aluminum imports could affect the prices of over 1,300 different kinds of consumer durables typically imported from China raising the price to US consumers often significantly. The objective is to save American jobs. But in fact its nothing more than a pathetic attempt at symbolic politics and will harm American consumers far more than it will save American jobs. Furthermore, tariffs in the global age are highly ineffective and cannot serve to build and protect what were once “nascent industries” as in the very early days of the American industrial revolution.
In the first place, like coal, steel industry jobs aren't coming back. The real reason for the job decline in that industry, once America’s most inefficient of all the ailing heavy industries, is labor saving technology. One estimate from an article in Jacobin explains;
“Besides, manufacturing operations like steel production simply don’t need as much labor as they did in the past. Thirty years ago, the US had about 200,000 steel workers who produced approximately 80 million metric tons of steel per year. In the last few years, roughly the same annual volume of steel has been produced by about 85,000 US workers, meaning productivity is more than twice what it was then. Most of the long-run job losses in steel have been caused, not by imports, but by the improved technology (automation) and industry restructuring (mini-mills that rely on recycled scrap instead of iron ore) that led to this doubling of productivity. As a result, restricting imports can bring back only a small fraction of the jobs lost in earlier eras.”
The article further explains that tariffs would lead to a net loss of jobs. There seems to be a wide consensus on this point and it is exactly what occurred in 2002 when George W. Bush imposed steel tariffs despite a wide range of exemptions to the tariff. An industry study by Trade Partnerships Worldwide, LLC concluded that the tariffs caused more harm than good;
“200,000 Americans lost their jobs to higher steel prices during 2002. These lost jobs represent approximately $4 billion in lost wages from February to November 2002...More American workers lost their jobs in 2002 to higher steel prices than the total number employed by the U.S. steel industry itself (187,500 Americans were employed by U.S. steel producers in December 2002).”
The problem with tariffs in the global age is the radically changed structure of the world economy from what it was decades ago. Today, the world economy is highly integrated not only through trade but through direct investment often in the form of global supply chains whereby finished products have inputs from a large variety of countries. Tariffs are highly disruptive of the new global business model and simply cause more unemployment (and excess industrial capacity) than that caused by trade. Tariffs are no longer an effective means of protecting local industry. They simply raise costs to local industrial users of needed processed metal inputs by making them more expensive thus harming the overall economy. A March 5, 2018 report by the Trade Partnership estimates that Trump’s tariffs could cost nearly 146,000 net jobs if implemented. An article in Politico that cites another industry report by Harbor Analytics that sums up the effects of the aluminum tariffs as severe as well. “...a 10 percent aluminum tariff would create around 1,900 aluminum smelting jobs over the next two years, but destroy from 23,000 to 90,000 direct jobs in the U.S. manufacturing sector.” It seems much better to lose jobs to trade than to attempt to save them via tariffs!
It seems that the only “winners” here are the cronies of the Republican Party that the executives and major shareholders in the waning American steel and aluminum industries. The working families that will ultimately lose jobs across a variety of industries will certainly not gain at all. Most of the decline in manufacturing jobs has been through labor saving technology and reorganization of production with “just in time” lean production techniques which reduce warehousing costs and employment. Since 1979, the toll taken by recessions and labor saving technology has eliminated well over ten million manufacturing jobs. Yet, manufacturing output, especially in the consumer durable goods sector, has dramatically increased. According to a recent Pew Research Center study the US durable goods manufacturing output index rose 166% from 1987 to 2017 while that of the non-durable goods sector rose 17% over the same period. All this was done with far fewer workers; US manufacturing employment peaked in the 1950s at about one third of total non-farm payroll employment to less than ten percent today. The increase in US productivity overall is concentrated in the manufacturing sector. According to a US Commerce Department report, “From 1977 to 2002, productivity in the overall economy increased 53 percent, while manufacturing sector productivity rose 109 percent.” It is productivity-coupled with a slow down in economic growth-that has gutted manufacturing employment, not imports. Tariffs won’t solve this problem and will likely worsen it.
On strategy to save US industrial manufacturing jobs is to increase demand for output with a massive public investment program for full employment. The focus should be on expanding employment in the higher wage sectors of the economy not vulnerable to trade such as infrastructure, renewable energy development and energy conservation, health care and education and mass transit. Job growth through robust fiscal stimulus in these areas will create millions of new jobs at a living wage and boost consumer spending which will in turn create more investment in domestic manufacturing output which has already seen a revival over the past several years albeit at lower than expected wages.
Increasing US domestic demand is essential for a domestic revival in manufacturing and is a more effective means than relying on export growth. According to Bloomberg’s,
“While the global economy is a big driver of manufacturing growth, US domestic demand is even more important. Every one percentage point increase in domestic demand (GDP net of trade) boosts manufacturing production by 1.34 percentage point on an annualized basis, while every one percentage point increase in global industrial production outside the United States lifts domestic manufacturing production by 0.44 percentage point.”
Similarly, with the rise of health care, education and housing costs looming largest in the US consumer budget, a decline in the manufactured goods share of the typical household consumption profile has hurt manufacturing. According to the Peterson Institute, in 1960 US consumers were allocating just over half their household spending on goods but by 2010, the share had dropped to one third. Tariffs won’t shift the consumer demand profile back toward manufactured goods especially domestically produced ones. Boosting US income with a jobs program for full employment through fiscal stimulus has a better chance of accomplishing greater demand for US manufactured goods. And if it is employment growth we are seeking, fiscal stimulus is certainly a more certain path to that end than tariffs which has shown to be a failure.
How do we know economic growth responds to government spending. We know austerity is a failure. Economist Josh Bivens points out;
“Astoundingly, per capita government spending in the first quarter of 2016—27 quarters into the recovery—was nearly 3.5 percent lower than it was at the trough of the Great Recession. By contrast, 27 quarters into the early 1990s recovery, per capita government spending was 3 percent higher than at the trough, 23 quarters following the early 2000s recession (a shorter recovery) it was 10 percent higher, and 27 quarters into the early 1980s recovery it was 17 percent higher. If government spending following the Great Recession’s end tracked spending that followed the recession of the early 1980s for the first 27 quarters, governments in 2015 would have been spending an additional trillion dollars in that year alone, translating into several years of full employment even had the Federal Reserve raised interest rates. In short, the failure to respond to the Great Recession the way we responded to the other postwar recession of similar magnitude entirely explains why the U.S. economy is not fully recovered seven years after the Great Recession ended.”
And here is the rub! If Trump were truly interested in saving and creating jobs, he’d have a robust stimulus effort. His tax cuts will do nothing but produce financial bubbles. Tariffs will cost jobs. The current cuts in domestic social spending will similarly be a missed opportunity and are taking us in the wrong direction. Only public investment will create full employment and boost domestic manufacturing along with it.
