Question

President Trump has imposed tariffs on products imported from numerous countries and recently expanded the Chinese tariffs. Do you think he is doing the right thing?

What will the eventual consequences be of all these tariffs?

Will we be better off or worse off as a result?

Answer 1

Research from the U.S. Federal Reserve and other top economists shows that U.S. tariffs on Chinese industrial components and materials, which largely won’t be lifted by the deal, are proving especially damaging to American manufacturing competitiveness and jobs.

The White House has scheduled a signing ceremony on Wednesday for what Trump is touting as “the greatest and biggest” trade deal ever made, with China expected to pledge to boost purchases of American exports by $200 billion over two years, including $80 billion more in manufactured goods, $32 billion more in farm products and $50 billion more in energy.

China also has promised to open its financial services market, improve protections for intellectual property and forbid the forced transfer of technology to Chinese companies. But Beijing has a history of pledging reforms that don’t happen, and many consider the purchase targets unrealistic.

The deal caps years of U.S. tensions with China that boiled over into a trade war 18 months ago, as Trump slapped new duties on $370 billion worth of goods from China. Beijing hit back with retaliatory tariffs on over $100 billion worth of U.S. exports.

The trade war's most immediate effect has been a drag on global economic output. The World Bank last week marked down its global growth forecasts here for 2020 and 2021 because of a slower-than-expected recovery in trade.

Early predictions that Trump’s tariffs could spark a U.S. recession have proven unfounded, in part because of the consumer-driven nature of the American economy. The Trump administration’s 2017 tax cut package and three Fed interest rate cuts in 2019 also helped stimulate activity.

The U.S. tariffs on China targeted industrial goods, components, semiconductors and machinery. Major tariffs on consumer goods such as cellphones, laptop computers and toys were scheduled to go into effect last month, but the Phase 1 deal suspended them indefinitely.

Trade wars were a key factor in a broad slowdown of U.S. manufacturing activity last year. U.S. manufacturing output fell in seven of 11 months, with an annualized 3.3% drop in the second quarter, the largest since the second quarter of 2009, when the economy was in recession, according to data compiled by the U.S. central bank.

Aluminum, electric lighting, furniture, semiconductors and steel mills saw the most benefit from tariff protections, while companies that stamp, forge and otherwise process steel and aluminum into components and end-products suffered the most from higher input costs.

Tariffs that will remain on goods from China after the Phase 1 trade deal are a big problem for the U.S. economy going forward.