How Many Tariff Studies Are Enough?

Shipping containers are stacked at the Port of Long Beach in Long Beach, California, Dec. 17, 2019.


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Ringo Chiu/Zuma Press

The evidence of economic harm from tariffs keeps piling up. Two studies out this month from the National Bureau of Economic Research (NBER) indicate—again—that U.S. tariffs are paid almost entirely by American consumers, while illustrating how they also act as a drag on U.S. exports.

The first paper is by economists at the Federal Reserve Bank of New York, Princeton and Columbia. They examined data on U.S. customs through October 2019. By then, as they calculate, the average U.S. duty had more than tripled, from 1.6% to 5.4%. But foreign firms generally did not cut prices to compensate. Instead, “approximately 100 percent of these import taxes have been passed on to U.S. importers and consumers.”

The exception was steel imports, for which the tariff pass-through rate “falls to around 50 percent a year after the tariff was applied.” This cuts both ways: On one hand, at least American steel users bear only half the extra cost. But then how will President

Trump

revive steel jobs? “The fact that foreign steel producers have lowered their prices,” the economists say, “may help explain why U.S. steel production only rose by 2 percent per year between the third quarter of 2017 and the third quarter of 2019.”

The second paper is by economists at the Federal Reserve, the University of Michigan and the Census Bureau. Their focus is the weakness in U.S. exports, where growth has been flat or negative, even when excluding “exports to China or products facing retaliation.” What gives? One factor, as they wryly explain: “Firms’ reliance on global supply chains can complicate the application of traditional mercantilism.”

By value, the items on Mr. Trump’s many tariff lists are mostly—57%, the study says—intermediate goods. Hence the boomerang effect, since American companies use these inputs to make their own products. The authors add that “84% of total U.S. exports were by firms facing at least one import tariff increase.”

Those companies represent 65% of manufacturing employment, another big concern for Mr. Trump. “For all affected firms,” the economists estimate, “the implied cost is $900 per worker in new duties.” For manufacturers, it’s even higher: $1,600 per worker.

This fits with the rest of the evidence. A study from the Federal Reserve, which we recently wrote about, said: “A small boost from the import protection effect of tariffs is more than offset by larger drags from the effects of rising input costs and retaliatory tariffs.” An NBER paper in March said that “the full incidence of the tariff falls on domestic consumers, with a reduction in U.S. real income of $1.4 billion per month.” Don’t forget the duties on washing machines, which researchers say raised prices on washers—and also on dryers—by about 12%.

Protectionists may defend their policies on political grounds, but that means ignoring the mounting evidence of economic harm.

As the impeachment trial of Donald Trump gets underway in the Senate, Paul Gigot, Kim Strassel, Bill McGurn and Jason Riley discuss possible scenarios as Democrats present their case against the President. Image: Steve Helber/Associated Press

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