Tariffs: The First Time as Farce, the Second as Tragedy

By Andrew Stuttaford

Friday, April 04, 2025

 

The administration’s tariff hikes show next to no evidence of care or thought, other (it seems) than a certain knowledge of ChatGPT. The only Greek letters of any relevance are not those in the formula that supposedly helped generate the tariff numbers, but these: ὑβρις (hubris). Let’s just hope that what is said to follow hubris, Νέμεσις (nemesis), can be avoided,

 

Over at Reason, Erica York takes a look at some of the facts that the White House is citing in support of its new tariff regime. They are about as reliable as might be expected.

 

For example, the White House cites two reports from the U.S. International Trade Commission (USITC) on the impact of Trump’s first-term tariffs to come to the conclusion that “[they] strengthened the U.S. economy,” “led to significant reshoring,” “stimulated more U.S. production of the affected goods,” and “had very minor effects on downstream prices.”

 

Hurrah!

 

But, notes York, the main source for these claims was a 2023 report from the U.S. International Trade Commission (USITC). It came, however, with a caveat.

 

“The report is not an assessment of the complete, economy-wide impacts of the tariffs . . . and cannot be used to draw broad conclusions about whether the tariffs . . . produced a net benefit for the U.S. economy overall.”

 

Oh.

 

York:

 

Overall, the report shows that tariffs led to a nearly one-to-one price increase for steel, aluminum, and Chinese imports, prompting domestic producers to increase their prices.

 

While the USITC report estimates that tariffs increased U.S. metal production by $2.8 billion annually, the White House omits a key finding: Higher metals prices also reduced output in other manufacturing industries that rely on metal goods by $3.4 billion annually. That’s a net loss in production.

 

The White House also fails to mention that USITC excluded a similar “downstream” analysis for the China tariffs. Still, the report discusses how “increasing the price of intermediate goods (directly through the tariff or indirectly through the increase in the demand for domestic substitutes) would increase the cost and lower the domestic production of downstream goods.”

 

York looks at various other claims that don’t stand up too well, before alighting on this one:

 

The White House links to multiple news articles to support its claim that “Trump’s first term steel tariffs led to thousands of jobs gains in the metal industry, along with wage increases.”

 

Most estimates suggest the tariffs led to only about 1,000 additional jobs in metal production. While domestic capacity utilization initially increased, it later dropped below the Trump administration’s goals, partly due to tariff exemptions.

 

And the modest gains in metals employment came at a much larger cost to other parts of the economy. A 2019 Federal Reserve Board paper estimated that higher input costs from the metals tariffs were associated with 0.6 percent fewer jobs—about 75,000—in the manufacturing sector. Economist David Autor and his co-authors found that tariffs did not raise overall employment in the communities they targeted, in part due to retaliatory measures that reduced job opportunities.

 

York points out that there have been many attempts to protect the steel industry:

 

[But] all these import restrictions have failed to promote overall growth in production and employment in the industry—consistent with broader evidence that tariffs rarely deliver lasting industrial revival. Instead, they tend to encourage rent seeking and discourage investment in innovation and capital expenditures.

 

To put it another way, the jobs created by tariffs that really mattered were those in the Swamp, something that the president has vowed to drain. It’s worth adding that the way that tariffs disincentive innovation and capital expenditure ensures that those “protected” industries are less and less well positioned to supply other U.S. manufacturers with product of a quality and at a price that those manufacturers need if they are to compete internationally.  It also means that it is extremely difficult for these increasingly incompetent wards of the state ever to emerge from behind the tariff wall, meaning that the tariff (which is a de facto subsidy) is likely to last for a very long time.

 

Here and there a case can be made for tariffs to protect “strategic” industries (although watch for how the word “strategic” is defined), but if that’s the rationale, be honest about it. Explain that a tariff to protect industry X is necessary for strategic reasons, and that it will come at a cost, an admission that is not only honest and nothing to be ashamed about, but prepares the way for a proper cost benefit analysis to be carried out, something that has the additional merit of ensuring that strategic “costs” are being incurred in the right places, and at the right time. The “strategic” wool and mohair subsidy (a tariff is, as noted above, just a different type of subsidy) lasted for over 40 years.