During Trump’s first term in office, the US increased tariffs on many trading partners. From an economic perspective, the measures were not a success. A new study shows that trade policy was still beneficial for the Republican Party.
Donald Trump in the Oval Office: The then American president began his trade wars against China and other countries in 2018.
Jim Lo Scalzo / EPA
It started with washing machines, more specifically with higher tariffs on the import of washing machines. It was the first salvo of trade policy measures by Washington under then-President Donald Trump against China in 2018. This was followed by tariffs on imports of steel and aluminum, which also increasingly affected other countries. Beijing responded with countermeasures. Washington responded, to which China responded again. An agreement was reached between the USA and China in 2020, but many tariffs remained in place.
Trump had fulfilled a campaign promise with the trade war against China. From a political perspective, Trump had the right instinct and was able to increase his popularity in the American heartland. However, from an economic perspective, the trade policy was not a success: it did not lead to economic improvement in the affected regions. Nevertheless, the former president and likely Republican presidential candidate is planning a new edition of his trade war.
Little or no new jobs
Die Economists David Autor, Anne Beck, David Dorn and Gordon Hanson show in a new study that the higher tariffs on imports from China between 2018 and 2019 had little or no impact on employment in the sectors and regions that were thereby more protected.
In previous studies, scientists coined the term “China shock,” meaning that Chinese imports eliminated many jobs in industrialized areas of the United States in the 2000s. In doing so, the economists provided the academic soundtrack for the Trump era. “While the employment effects of the tariffs were small in most regions, the political gains for the Republicans were quite large,” says David Dorn in an interview. He is one of the co-authors and teaches at the University of Zurich.
However, trade policies led to other countries taking action against American goods. And these retaliatory tariffs had a negative impact on American jobs. This applies especially to agriculture. China had sharply increased tariffs on soybeans, cotton and sorghum from the USA – with the result that American farmers were able to export less.
The Trump administration responded to the negative consequences of the trade war with support money for agriculture. However, the more than $20 billion spent could only partially mitigate the damage caused by Chinese tariffs. The economists conclude: “The net effect of import tariffs, retaliatory tariffs and agricultural subsidies on employment in locations exposed to the trade war was insignificant at best, perhaps even slightly negative.”
Other studies also speak of negative economic effects: consumers in the USA in particular bear the costs of higher tariffs. In addition, American companies have to pay more for intermediate products from abroad, and tariff increases in other countries also make exports more difficult. It also appears that China, but also the EU, particularly tried to target industries concentrated in regions with many pro-Trump and pro-Republican votes in their countermeasures.
Election promise kept
And yet economists think it paid off politically for Trump. He and the Republicans were able to achieve significant gains in votes in regions that received stronger import protection. The foreign counter-tariffs had only a minor influence on voting behavior. This could also have been because the American economy was doing well during the trade war.
It could therefore be that some voters incorrectly attributed this to the government’s measures. Trump missed no opportunity to take credit for factory openings, even though the investment decision had already been made before his term in office. The Zurich economist Dorn lists another explanation: “The voters certainly appreciated that Trump kept his campaign promises and that he took a tough approach against Chinese trade competition.”
The trade figures also point to a success of Trump’s policies – but only superficially. The importance of Chinese imports for the USA has decreased. However, imports from countries such as Mexico and Vietnam have increased at the same time. Trade statistics suggest that Chinese intermediate or final products entered the United States through these countries.
Biden sticks to tariffs
The government under Democratic President Joe Biden has largely retained the tariffs from the Trump era – but without escalating them further. Dorn suspects that the Biden administration is refraining from abolishing economically senseless tariffs for political reasons. They don’t want to appear soft towards Beijing; skepticism about China has also grown within the democratic voter base.
US Trade Representative Katherine Tai justified maintaining Trump’s measures by saying the tariffs had strategic value in strengthening the US industrial sector and job creation. Trade policy complements large subsidy programs for renewable energy, semiconductors and infrastructure. The idea of free trade is not very popular in Washington.
US Trade Representative Katherine Tai justifies maintaining Trump’s tariffs against China.
Trump could escalate further
Trump, who will probably become the Republican presidential candidate, wouldn’t be Trump if he couldn’t do a better job here too. He has already said that in his second term he would impose a 60 percent tariff on Chinese imports. In addition, all other imports into the USA should be subject to a tariff of at least 10 percent. The cuts would be enormous and countermeasures would not be long in coming.
“The idea of additional tariffs on goods from countries you don’t like can obviously be sold for political gain. The simple measures are easy to understand, while the negative economic consequences are less obvious,” says David Dorn. From this perspective, another trade war would be unsurprising if Trump were to be re-elected.
The Zurich economist also recalls that Trump initiated a trade war with Mexico and Canada relatively early in his first term in office. In doing so, he forced the two neighboring countries to renegotiate the North American Free Trade Agreement – with slight additional advantages for the USA.
No matter who is elected to the White House in November, the prospect of protectionist policies to protect American industry remains. The difference is likely to lie in the aggressiveness of the instruments and the rhetoric: While Trump could go on a collision course with other countries by increasing tariffs, the Biden government is specifically trying to promote certain industries.