The Trump tariffs keep working, to the consternation of many economists
As a new year dawns in America, many of the nation’s manufacturing sectors are experiencing aggressive growth.
In October, the largest U.S. manufacturer of solar panels, First Solar, announced production at its second U.S. plant, a new $1 billion factory in Lake Township, Ohio, that will employ 500 workers. Roughly a dozen other solar panel and cell manufacturers are following First Solar’s example and launching additional U.S.-based production as well.
In November, kitchenware and furniture maker Williams-Sonoma announced a 6.4 percent increase in third-quarter revenue. Much of this success came from its new retail brand West Elm, which experienced a fourth-quarter sales increase of 14 percent despite 25 percent tariffs on most of its products sourced from China. Williams-Sonoma has made commitments to leave China and is opening manufacturing operations in the U.S. and adding employees.
And in December, America’s largest steelmaker, Nucor, announced the addition of a coil paint line at its Mississippi County, Arkansas, mill that will coat roughly 250,000 tons of steel each year. The plant will add 50 new jobs in Arkansas, joining the hundreds of positions that the company is currently adding in new mills under construction in Missouri and Florida.
These companies are just a few examples of a broader trend showing that the Trump administration’s tariffs are working. The steel industry in particular offers ample evidence, with America’s steel companies investing some $13 billion in new steelmaking and mills across the nation.
This isn’t what many economists predicted, however. And frustrated by the flow of such positive news, the economics profession is looking for other means to wage their war against tariffs. Last month, two Federal Reserve Board economists, Aaron Flaaen and Justin Pierce, claimed that the tariffs have led to a “relative” loss for manufacturing employment in affected sectors. They also reported other small but negative effects from rising input costs. Their report follows other attempts to demonstrate that the tariffs aren’t helping the economy.
But what’s really going on? The answer, to quote one economist friend, is: “If you torture the data long enough, it will confess to anything.”
Here’s what we actually know. There was a manufacturing boom in 2017 and 2018 that boosted manufacturing employment 190,000 jobs in 2017 and 264,000 jobs in 2018. That brought America’s factory employment up to 12.809 million by December 2018. The 2018 increase was the largest in 20 years. Federal Reserve manufacturing production figures support this, showing industrial production up 2.5 percent in 2017 and 2.2 percent in 2018.
In 2019, the manufacturing sector experienced a pause. Fed data show that as of November, manufacturing output was down 0.8 percent compared with November 2018. But jobs aren’t down. Manufacturing employment in November 2019 came in at 12.865 million, up 56,000 jobs from December 2018.
The 2019 slowdown could have many causes. There’s the Fed’s series of interest rate increases. Or the slowdown in foreign economies, including China and Germany. But the fact remains that the U.S. economy continues to grow faster than major competitors. And China is suffering from the current trade war, with U.S. imports from China down $65 billion – or 15 percent – in 2019 year-to-date compared with 2018.
As for the tariffs’ impacts, some industries may have seen price increases following the tariffs. But there are many product categories, like steel and solar panels, where prices have actually fallen since the tariffs were imposed. And even in industries like furniture, where prices have risen, they have increased by far less than the tariff rate of 25 percent. And while some companies that sell cheap products from China have suffered, more nimble companies like Williams-Sonoma have done very well.
Despite all this real-world evidence, economists have rushed to condemn the Trump administration’s trade policies. They simply believe that free trade is wonderful, and that Donald Trump is awful. And they cannot be bothered to look at actual data and reports from the hundreds of companies reporting positive results in the past three years.
This is not to say that the tariffs are perfect. There are cases where downstream industries are suffering. But in a world where China has created completely artificial and highly subsidized prices in order to take over world industries, the answer is not to repeal the tariffs. Instead, the right path is to extend protection to these downstream industries, so that they too can enjoy growth by serving American customers and employing American workers.
Jeff Ferry is chief economist at the Coalition for a Prosperous America (CPA).