Throughout 2018, there has been a constant wave of criticism regarding the tariffs that President TrumpDonald TrumpFormer New York Assembly Speaker Sheldon Silver dead at 77 Biden, Democrats losing ground with independent and suburban voters: poll Bipartisan Senate group discusses changes to election law MORE imposed on an array of imports, principally from China.
However, the evidence shows that the tariffs are actually working. Economic growth is up, inflation is under control, and many of the tariffed industries are enjoying strong recoveries in output, profits and employment.
An economic analysis we conducted at the Coalition for a Prosperous America (CPA) explains why we are seeing stronger economic growth this year and can also expect more gains over the next three years.
The economic numbers in 2018 are already impressive. In the third quarter of this year, growth in inflation-adjusted GDP (the broadest measure of U.S. economic activity) came in at 3.5 percent. That’s far better than most economists expected a year ago.
The Commerce Department is also reporting that consumer spending was up a strong 0.6 percent in October. That’s good, too, but even more stunning is the data showing online consumer sales were up 23.6 percent for “Black Friday” compared with last year.
Economists and retailers are now expecting strong holiday sales, driven by low unemployment, with wages rising slightly faster than inflation.
Even more impressive is the growth in America’s manufacturing sector. Despite continual predictions that the proverbial sky is falling, the Trump tariffs have actually combined with other policies to trigger an economic boom for U.S. manufacturing.
Federal data shows U.S factory employment up 296,000 jobs compared with a year ago. And manufacturers are reporting that demand for their products has increased in a broad range of industries — including everything from tiny medical devices to heavy construction machinery. This mirrors the closely-watched Purchasing Managers’ Index, which shows broad optimism across U.S. manufacturing.
The tariffs have contributed to this growth, both directly and indirectly. In the four main areas where tariffs were imposed — steel, aluminum, solar panels, and washing machines — the U.S. has directly added more than 11,000 jobs as of August.
Since then, more investments and jobs have been announced — including a massive $1.5 billion steel plant by Steel Dynamics that will employ some 600 workers. And in the solar arena, Solar Power World magazine lists more than a dozen U.S. companies where new facilities have been “started and/or expanded.”
After so much negative press, how is it that the tariffs are working so well?
Critics claim that tariffs will raise prices, which will hurt economic growth. However, the tariffs have been in place for almost a year now and “core inflation” remains low, at just 2.1 percent annually, as of October.
What’s happening is that, at each stage of production for various manufacturing sectors, intermediate producers appear to be absorbing the cost increases. In fact, the main upward pressure for inflation in the U.S. economy, according to the Bureau of Labor Statistics (BLS), is actually coming from energy and rising costs for housing. Tariffs have had no noticeable effect on the inflation picture.
Why have the tariffs been working so well? The Coalition for a Prosperous America (CPA) examined both the positive and negative impacts of tariffs on the U.S. economy. We found that the tariffs have added $9 billion to U.S. GDP this year.
Hiring in the tariffed industries is carrying over to local supply chains and communities, boosting regional economic growth. Meanwhile the much-feared negative effects due to price increases have not happened.
The truth is that the U.S. economy has always been a domestically-driven economy. Exports account for only about 12 percent of U.S. GDP.
The great century of American economic growth — from 1870 to 1970 — was based entirely on making America’s workers prosperous enough to buy the very same goods they were producing. That is the secret to U.S. economic growth, and it’s happening again now.
In short, the tariffs are working. Some argue that tariffs are a “nationalist” policy. But the tariffs are not eliminating imports. Clearly, the U.S. will continue to import a wide swath of goods, but a stronger domestic manufacturing sector will mean a higher growth path for the nation as a whole.
Jeff Ferry is research director at the Coalition for a Prosperous America (CPA), a labor and manufacturing group that backs tariffs and currency moves.