Published
February 24, 2020
The United States has seen important steps forward on trade over the past couple of months, but the recent wave of tariffs continues to impose a heavy burden on many American businesses. The result is higher operating costs, reduced global competitiveness, and dampened investment.
The U.S. Chamber welcomed recent trade developments promising greater certainty for the U.S. economy, including approval of the United States-Mexico-Canada Agreement (USMCA) and the U.S.-China Economic and Trade Agreement. These pacts provide clarity that will help businesses to plan, hire, and build.
Yet amid change, some things remain the same: nearly all of the tariffs imposed over the past three years remain in place.
Number to note: $400 billion
That’s the value of imports the U.S. has hit with new tariffs in the past three years.
A recent Congressional Budget Office report notes that these new tariffs cover nearly $400 billion of U.S. imports, with goods from China, imports of steel and aluminum, and goods from the EU all in the mix. Many of these tariffs are set at levels that are considered prohibitive — that is, they shut out imported goods.
These tariffs “continue to be almost entirely borne by U.S. firms and consumers,” as a study by the Federal Reserve Bank of New York found. The Tax Foundation has described the latest wave of tariffs as “equivalent to one of the largest tax increases in decades.”
Overall, the U.S. economy remains strong. Growth reached 2.3% in 2019, and unemployment has fallen to the historic low of 3.6%. Wage growth has generally been strong over the past three years.
However, tariffs have damaged the parts of the U.S. economy that are most open to trade — manufacturing and agriculture — while the huge American services economy has supported these positive headline numbers.
In fact, American manufacturers have fallen into recession, with the sector’s output contracting by 1.3% in 2019. States such as Michigan, Wisconsin, and Pennsylvania saw net manufacturing job losses, and blue collar factory wages fell nationally last year.
How does this compute? Manufacturing accounts for just 11% of the U.S. economy, and agriculture accounts for 5.4%. It is the services economy, largely fueled by consumer spending, that continues to power ahead; and most services are not affected directly by tariffs.
The Wall Street Journal recently noted the breadth and consistency of the evidence confirming the damage tariffs are imposing on the U.S. economy. One study found that the average U.S. tariff has tripled in the past two years. Another study found that “84% of total U.S. exports were by firms facing at least one import tariff increase,” which added $900 in additional costs per worker and undermined these companies’ export competitiveness.
Additionally, tariffs imposed over the past two years will reduce U.S. GDP in 2020 by more than $100 billion and “reduce average real household income by $1,277," according to the Congressional Budget Office’s just released Budget and Economic Outlook: 2020 to 2030.
Specific industries have been hit hard. For example, the National Marine Manufacturers Association—whose members make recreational boats, marine engines and accessories—welcomed approval of USMCA and the China trade deal. However, the organization notes that the Administration continues to impose a 25% tariff on “more than 400 commonly used marine components and parts” used by these American manufacturers. Also, “the EU continues to impose a 25 percent retaliatory tariff on U.S. boat and engine exports” in response to U.S. tariffs on European steel and aluminum.
The U.S. spirits industry is another victim. As the Distilled Spirits Council of the United States recently pointed out:
“According to new data released this week from the U.S. International Trade Commission, the EU’s 25% retaliatory tariff on American Whiskey caused exports to the EU, the U.S. spirits industry’s largest export market, to tumble 27% in 2019 compared to 2018. Global exports of American Whiskey have declined 16% and global spirits exports are down 14.3% over the same timeframe.”
The Association of Equipment Manufacturers (AEM), which advocates on behalf of the off-road equipment manufacturing industry, has also spoken out on this issue:
“Tariffs continue to take a toll on U.S. businesses, manufacturers, farmers, communities and families across the country… With about 30 percent of equipment made in the United States destined for export, AEM urges the Trump administration and Congress to support pro-growth trade policies that keep U.S. equipment manufacturing competitive in an increasingly competitive global market. Tariffs artificially raise the cost of domestic production, eliminate export markets for U.S. equipment manufacturers, hurt U.S. agricultural producers and risk wiping out many of the benefits of tax reform.”
While Americans are optimistic about the economy, the difficulties of these trade-dependent sectors have left the broader economy in a weaker position to weather any unexpected shocks.
At a time when the Administration has been working to score more trade wins, leaving these tariffs in place will squeeze some of the very industries officials have sought to help. New thinking is needed — and fewer tariffs.
About the authors
John G. Murphy
John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy and regularly represents the Chamber before Congress, the administration, foreign governments, and the World Trade Organization.
