The impact of the Trump trade war

We analyze the short-run impacts of the 2018 trade war on the U.S. economy. We estimate import demand and export supply elasticities using changes in U.S. and retaliatory war tariffs over time. Imports from targeted countries decline 31.5% within products, while targeted U.S. exports fall 9.5%. We find complete pass-through of U.S. tariffs to variety-level import prices, and compute the aggregate and regional impacts of the war in a general equilibrium framework that matches these elasticities. Annual losses from higher costs of imports are $68.8 billion (0.37% of GDP). After accounting for higher tariff revenue and gains to domestic producers from higher prices, the aggregate welfare loss is $6.4 billion (0.03% of GDP). U.S. tariffs favored sectors located in politically competitive counties, suggesting an ex ante rationale for the tariffs, but retaliatory tariffs offset the benefits to these counties. Tradeable-sector workers in heavily Republican counties are the most negatively affected by the trade war.

Here is the full paper, by Pablo D. Fajgelbaum, Pinelopi K. Goldberg, Patrick J. Kennedy, and Amit K. Khandelwal.  Full pass-through, of course, means that monopoly in these markets is likely not such a big deal.

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Sounds like no effect.

As would be predicted by anyone with a shred of common sense. Yet Bloomberg runs articles about this day in and day out, and their personalities (both TV and audio) consistently blamed the trade spat for the stock market decline in late 2018.

The bias of Bloomberg, and the whole media is shameful.

No effect? We know they are moving costs and benefits around. Some farmers earn less. Some manufacturers pay more. Other manufacturers earn more. The tax man collects more.

It's odd to say "we" broke even.

Well, as an index fund investors, I should break even. I and others like me are the "we" that I think about.

I think the headline is bass ackwards. We have been in a trade war for 50 + years. What Trump is doing is trying to stop the trade war. Mexico saw the light and cut their best deal and are doing well. Canada never saw the light, never wanted to even the playing field and they are doing so good. China has been the biggest winner in or 50 year trade war and they are not eager to change the good deal they have and their economy is in the dumper. Trump may well win this and end the trade war our elites gave us.

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The very phrase "trade war" is all you needed to hear to know this was a crap analysis.

(Much like anyone who says Cohen gave "explosive" testimony.)

Maybe if Americans hadn't allowed Red China to hollow out America's economy, no trade war would have been necessary. Maybe greed ia not that good, after all.

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Thank you for setting this up:

"When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win," Trump tweeted March 2, 2018. "When we are down $100 billion with a certain country and they get cute, don't trade anymore – we win big. It's easy!"

The point is, will he dare to go all the way? I doubt it. Red Chine insterests are now ubiquitous in America.

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MW:

The trade gap has continued to widen despite punitive Trump administration tariffs meant to reduce Chinese imports and force the Asian giant to alter what the White House considers unfair trade practices.

The U.S. agreed last week to postpone another round of tariff increases to give the two countries 90 days to make progress in resolving trade conflicts, but the arrest on Wednesday of senior Chinese business executive in Canada could throw a kink into negotiations.

The U.S. trade deficit added up to almost $503 billion in the first 10 months of 2018. That compared to about $451 billion in the same span in 2017.

The last time the U.S. trade deficit was higher was in 2008, when it topped $700 billion.

It sucks to be rich - nobody can buy as much stuff as us.

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And in terms of markets, it is kind of natural that "which companies win, which lose" uncertainty would slow investment.

Indeed. If you are investing somewhere else than the US you might find it difficult or expensive to import your production.

The US seems to be doing fine, but China and Canada to pick two aren't.

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"Tradeable-sector workers in heavily Republican counties are the most negatively affected by the trade war."

If the effects are as small as the authors claim, then the president should be savvy enough to conduct his trade war to benefit or at least not harm his political base. Eliminating the SALT deduction had the virtue of being good economic policy and sticking it to the right people.

Yeah but it backfired too turning reliably Republican areas like Orange County, the heart of Nixon/Reagan style conservativism into Democrat voters.

I have it on good authority that Orange County is much too diverse and large to have a singular political identity.

New York is more diverse and larger than Orange County and they have a pretty strong political identity. I don't necessarily believe those two things have to conflict.

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And here is how Trump blew winning California in 2020.

Maybe he still has a chance

https://www.foxnews.com/us/photo-of-high-school-students-performing-nazi-salute-around-swastika-provokes-outrage-report

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OC had complacent incumbents like Rohrabacher and has changing demographics (crudely put: brown incoming, white outgoing such that Clinton won his district).

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"the president should be savvy enough to conduct his trade war to benefit or at least not harm his political base."

Except that's not happening. Tit-for-tat is something even a 3 year old even understands. That's why China took one look at the electoral map and slapped tariffs on soy, pork, Harley Davidsons, and other red state exports to inflict maximum damage. Tariffs on oranges is a nice touch since Florida is a battleground state. Trade wars are so easy!

https://www.cnbc.com/2018/07/06/red-states-will-lose-in-china-trade-war-citi.html
https://www.chinalawblog.com/2018/06/china-u-s-tariffs-and-how-to-fight-back.html

I didn't say that it was. It's reflects poorly on the president that he shoots himself in the foot in addition to being shot at by the Chinese.

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https://www.theglobeandmail.com/business/economy/article-economic-growth-slowed-to-04-per-cent-annual-pace-in-fourth-quarter/

Canada has done very poorly in comparison.

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Longer story short: free trade benefits are overrated. This is not the 19th century corn law wars (Hazel Meade, are you listening?)

How did you get that? If anything it should be that trade wars are overrated. Free trade is humming along despite Trump's "easy" trade war.

I could have sworn there’s a BGIC in the west village.

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IOW you're too stupid to actually comprehend the article.

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I'm very free trade not just for the economic efficiency of it, but just the fact no one should tell me who to trade with. That being said, I was surprised how little economically NAFTA produced when studied.

From my understanding, the benefits of NAFTA were mostly for Mexico b/c they had very high trade barriers that only geniuses like Trump and Bernie would love. US trade restrictions were already rather low, so the benefits were not as dramatic.

Some say it helped keep Mexico from turning into another Venezuela.

There was a pre-existing free trade agreement between Canada and the US. So you have to go back to 1989 to see it's impact. NAFTA was mostly an expansion of that agreement to include Mexico.

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Mexico has cheap pharmaceuticals but where's the free trade benefit for US consumers who would prefer to pay those prices. Trump, Bernie, and AOC should focus like a laser on this.

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"the aggregate welfare loss is $6.4 billion (0.03% of GDP)."

That's a pretty small number. Particularly since the trade tariffs were never meant to be permanent. Still if the number were to grow over time it would be troublesome.

Is it traditionally conservative to say "hey the businessman made less, but the tax man made more, so we're even? "

It's traditionally conservative to chuckle at a gdp estimate that goes to the second decimal point, and to laugh uproariously at anyone who takes it seriously.

+1

You guys are turning into real socialists here. You now only care about GDP and not the fraction of government spending, and coercion?

What happened to all that "at the barrel of a gun" stuff?

Ah well. Conservatives don't actually believe in anything, episode 1023.

I'm not defending the tariffs. You're imputing beliefs to me that I do not hold.

You +1'd more than the precision, but ok.

derek was clearly saying that the gdp was what mattered.

The username was a dead giveaway what I was agreeing with, I thought. The idea that anybody can pin down the net loss to within even a few hundred million in an economy as large as the US is full of crap. The net loss might be ten times that size, in reality. It might be a rounding error. That's my point.

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Is it traditionally conservative to chuckle at the trillions Trump added to the national debt? It might not be the two decimal points worth of rip-roaring laughter to you but to a real conservative the 4 commas worth of debt elicits howls of pain.

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Did the taxman actually make more, tax cuts and all also considered?

Revenue is up.

Debt is also up. Rising faster than revenue even.

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Without looking, I would not be surprised. Population is always growing. GDP is always growing. Within that context static or even slightly negative tax policy can show "growth." Independent of similarly growing spending, of course.

(In this context I meant "the tariff man.")

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Soybeans. https://www.daytondailynews.com/news/china-tariffs-sink-prices-for-ohio-soybean-farmers/JwqTDBeHtVm8Lh9WRaM2IO/

Beef. https://www.latimes.com/opinion/la-ol-enter-the-fray-trump-s-trade-war-causes-beef-pork-and-1532374864-htmlstory.html

https://www.forbes.com/sites/kenrapoza/2018/10/30/the-states-where-the-china-trade-war-is-hurting-most/#5a06de966cd6

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"After accounting for higher tariff revenue and gains to domestic producers from higher prices, the aggregate welfare loss is $6.4 billion (0.03% of GDP)." ---cited article.

0.03%? Why not say "smaller than any reasonable measurement error?

Or, "It seems a wash, the economic benefits of trade tariffs."

Of course, there are political reasons, craven and noble, for negotiating trade Red China.

Beyond that, this is what a team of modern macroeconomists came up with, who are inculcated from academic birth that "free trade is good."

As Paul Krugman and others have said, if there is an idea that has been sacralized in modern economics, it is that global free trade is always and everywhere good.

The academics who put together the above study are from NBER, World Bank, Yale, UCLA and Columbia.

So....if the the study's premises have a wiggle here, and the methodology has a waggle there, do the orthodox economists find the Trump tariffs are actually a positive for the US?

My suspicion is they bent the study to find all the negative effects of tariffs possible.....but hey, give kudos, they did find Trump tariffs are a wash, not the end of the world as we know it.

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How many blueberries are in the one-dollar blueberry carton in Bushwick?

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I think it best to wait on the cost benefit analysis of the "Trump Trade War" until the war is over. One possible outcome---and the one that appears to be the desired one---is that after the peace settlement is negotiated, trade with China will be more "free" (and fair) than before the "war" started. If this happens, will those currently estimating the cost of the "war" come back to revise their estimates? What will have been the net cost after taking into account the net present value of any future benefits?

Agreed. Why do the post-op analysis at half time?

Maybe we are talking about it because it's the only thing on Wodan's list that we can still pretend is on track.

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"Agreed. Why do the post-op analysis at half time?"

Because of politics. This is a talking point in the upcoming election.

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In other words, Trump's trade war
like his attempts to fix healthcare,
like his government shutdown,
like his meeting with Kim,
like his emergency wall declaration
are all useless.

Ann Coulter is right. This is the America's wimpiest president not named Bush.

Sadly, the best you can hope for from a politician is that he doesn't do very much. After 2020, we might look back fondly at Trump's ineffectiveness.

Maybe we should try(*) effective governance, just for once, what the hell.

* - and conservatives should participate in

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The impotency of the Trump administration is a blessing not a curse.

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News flash! Trade regimes (including the legal regime regulating labor imports) have only small effects on overall utility in countries whose domestic market exceeds a critical size and whose export mix isn't dominated by raw materials.

The discourse about trade and immigration is largely driven by status signaling within particular subcultures.

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The paper's model is essentially useless -- there is no effort to include US investment.
A huge benefit of the tariff war is the big increase in US investment, including especially mfg. Which has gone up quite a lot.

Tyler should be a bit chagrined, if not ashamed, to support the idea that trade war evaluation doesn't include investment effects.

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aren't you
like a lotta sociologists
conflating "supporting an idea"
with "pointing out a paper"?
biologists understand there is a difference
why don't sociologists?

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Thie tarrifs were going to destroy the economy, like the tax cuts were, and the Obamacare modificaitons were going to kill millions of people, and repeal of net neutraility was going to destroy the internet, and Trumpo was going to completely annihilate the US economy, and on and on. When will economists just admit that either they have no clue about the economy or they are poltical pawns?

Don't care about economists but I care about my taxes which got raised by this "tax cut". The Republicans literally had one job. Now they mean nothing to me.

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