New Federal Reserve Study Details How Trump's Trade War has Harmed US Manufacturers & Consumers

Donald Trump initiated a trade war with China soon after taking office. His stated reason was to assist America's manufacturers that had been harmed by China's trade policies and low production costs. His idea was that if you make products manufactured in China more expensive to American consumers, they would buy similar items made in the United States.

That might have worked 50 years ago, but the Trump Administration didn't take into consideration the dynamics of the 21st century supply chain. Today, companies in the United States procure parts globally and when you broadly increase tariffs you also increase costs for products made in America.

Moreover, Trump didn't take into account the costs associated with retaliatory tariffs imposed by China. They made products manufactured in the US more expensive to Chinese consumers and thus less attractive.

Aaron Flaaen and Justin Pierce just released the first comprehensive study for the Federal Reserve Board on the effect of Trump's tariffs on the U.S. manufacturing sector. They found that instead of assisting American manufacturers, the President's trade war with China harmed them, reduced employment in the manufacturing sector, and increased the prices for consumers. In other words, things couldn't have gone much worse.

Federal Reserve Study: "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."

The thing about this report is that it's not exactly a revelation; economists, CEOs, and trade policy experts had warned the Trump Administration that this would be the result of his trade war. China knew it too, which is one of the reasons they haven't relented on the core trade policy issues. But, of course, Trump went with his "gut feeling," which is almost never a good thing.

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By: Don Lam & Curated Content