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Sunday, December 29, 2019

Tariffs Don't Work

Flaaen, Aaron, and Justin Pierce (2019). “Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector,” Finance and Economics Discussion Series 2019-086. Washington: Board of Governors of the Federal Reserve System,  The abstract:
Since the beginning of 2018, the United States has undertaken unprecedented tariff increases, with one goal of these actions being to boost the manufacturing sector. In
this paper, we estimate the effect of the tariffs—including retaliatory tariffs by U.S. trading partners—on manufacturing employment, output, and producer prices. A key
feature of our analysis is accounting for the multiple ways that tariffs might affect the
manufacturing sector, including providing protection for domestic industries, raising
costs for imported inputs, and harming competitiveness in overseas markets due to
retaliatory tariffs. We find that U.S. manufacturing industries more exposed to tariff increases experience relative reductions in employment as a positive effect from import protection is offset by larger negative effects from rising input costs and retaliatory tariffs. Higher tariffs are also associated with relative increases in producer prices via rising input costs.