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Trade and the Jobs Landscape

September 29, 2019
One of President Trump’s key campaign promises was to reevaluate the trade relationship between the U.S. and China. In 2018, the Trump administration imposed tariffs of up to 25% on over $250 billion worth of Chinese goods.[1] In response, China imposed tariffs of similar severity on $110 billion worth of American goods, such as chemicals, coal, and medical equipment.[2] Since then, the two largest economies in the world have been engaged in an escalating trade war, but the meeting between President Trump and Chinese President Xi Jinping during the 2019 G20 summit signaled progress in negotiations. Here, the two leaders agreed to a ceasefire and a return to discussions for a trade deal.[3]

Though this meeting does not guarantee an end to the conflict, nor does it rescind existing tariffs, it does increase the likelihood of a final solution. However, as these trade talks continue, it is important to evaluate how these tensions have affected the U.S. economy. Jobs across tariff-impacted export industries is one indicator that may be particularly useful in understanding these effects.

Job Landscape Resulting from the Trade War

Research demonstrates that Trump’s tariffs have negatively impacted employment opportunities across the U.S. Studies highlight a fundamental economic argument: though tariffs may positively benefit U.S. producers by shifting foreign sourcing, American consumers ultimately pay higher prices.[4] However, there is some indication of job creation. As highlighted by the Trade Partnership Worldwide, if foreign sourcing shifts to the U.S. and sales increase for U.S. producers, companies along the supply chain would face higher demand and thus may need to hire more workers to meet this demand.[5] On the other hand, there is also evidence of job loss as well. For example, if U.S. producers still need to import inputs, the producers will face higher input costs, which increases prices for consumers, hurts sales, and may lead to employment cuts.[6] Taking these two forces into account, research on the net effect of tariffs on jobs has shown that they ultimately negatively impact employment opportunities and the domestic economy at large.

On the other hand, there is also evidence of job loss as well. For example, if U.S. producers still need to import inputs, the producers will face higher input costs, which increases prices for consumers, hurts sales, and may lead to employment cuts.[7] Taking these two forces into account, research on the net effect of tariffs on jobs has shown that they ultimately negatively impact employment opportunities and the domestic economy at large.

It is first important to understand how many domestic jobs these tariffs affect. An October 2018 analysis conducted by the Brookings Institution found that the retaliatory tariffs imposed on the U.S. by China, as well as the EU, Canada, and Mexico, affect nearly 650,000 U.S. jobs.[8] This estimate, however, does not highlight anticipated job losses rather, it focuses on the effect of the tariffs on export-dependent industries and isolates the number of jobs that rely on exports to these four countries. This effect, Brookings finds, is disproportionately felt by rural communities and small towns in the U.S., which hold a higher percentage of export-supported jobs than large metropolitan areas, as demonstrated in the figure below.[9]

Similarly, when examining the effect of these tariffs on job creation and losses, it appears that the net impact is still negative. In May 2019, the Tax Foundation estimates that Trump’s threatened and imposed tariffs would eliminate 155,878 full-time equivalent U.S. jobs.[10] Further, if the Trump administration follows through on threatened tariffs on automobiles and additional products from China, 347,988 more full-time equivalent jobs would be lost.[11] These findings are corroborated by a study released by the Trade Partnership Worldwide. The study finds that, as of November 2018, the initial steel and aluminum tariffs imposed in March 2018, plus retaliation, have resulted in a net loss of 934,700 jobs.[12] Though an estimated 126,900 jobs were created as a result of these tariffs, an estimated 1,061,400 jobs are lost, and each new job cost the U.S. $490,900. Factoring in the threatened tariffs on automobiles and parts, as well as all remaining imports from China, the study concludes an even higher cost on jobs. This scenario shows a net loss of 2,235,400 jobs, including 332,000 jobs gained and 2,567,500 jobs lost, resulting in a $583,693 cost for every job gained.[13]

Even when these tariffs create jobs, the consumer cost per job is high. A study performed by researchers at the University of Chicago and the Federal Reserve Board analyzed the impact of the Trump administration’s tariffs on imported washing machines in 2018. The researchers estimated the consumer cost per domestic job created for the roughly 1,800 new workers employed as a result of trade restrictions. Similar to other studies, they found that in a partial equilibrium setting, while the tariffs did create jobs, they also increased annual consumer costs by nearly $1.5 billion, resulting in a consumer cost of $815,000 per job created.[14]

Conclusion

As the trade war between the U.S. and China continues, and with hopes of a trade deal on the horizon, it is important to consider how the U.S. economy has been affected by tariffs thus far. Evidence suggests that, while tariffs do create domestic jobs, the net effect is a large decline in employment opportunities. Thus, this research raises the question; are these tariffs truly benefitting the U.S. economy when the cost on employment has been so high?

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  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1] https://taxfoundation.org/tariffs-trade/#enacted

  [2] https://www.bbc.com/news/business-45899310

  [3] https://www.reuters.com/article/us-usa-trade-china/china-warns-of-long-road-ahead-for-deal-with-u-s-after-ice-breaking-talks-idUSKCN1TV01F

  [4] https://tradepartnership.com/wp-content/uploads/2019/02/All-Tariffs-Study-FINAL.pdf

  [5] Ibid.

  [6] Ibid.

  [7] Ibid.

  [8] https://www.brookings.edu/research/which-us-communities-are-most-affected-by-chinese-eu-and-nafta-retaliatory-tariffs/

  [9] Ibid.

  [10] https://taxfoundation.org/tariffs-trade/#retaliatory

  [11] Ibid.

  [12] https://tradepartnership.com/wp-content/uploads/2019/02/All-Tariffs-Study-FINAL.pdf

  [13] Ibid.

  [14] https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_201961-1.pdf

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