Free Trade

Trump's Tariffs Cost the U.S. Economy $1.4 Billion Every Month

New study shows U.S. consumers pay every dollar of the tariffs, which have also damaged supply chains and the availability of goods.


Carmen Jaspersen/dpa/picture-alliance/Newscom

Tariffs imposed by President Donald Trump during 2018 cost the U.S. economy $6.9 billion last year—above and beyond the $12.3 billion paid by American consumers and importers to the federal government.

That's the conclusion of a new economic analysis of the Trump trade war published this week by Centre for Economic Policy Research, a London-based think tank, by a trio of economists from the Federal Reserve Bank of New York, Princeton University, and Columbia University. The paper draws an important but sometimes ignored distinction between the cost of the tariffs as a form of taxation and the broader economic effects of raising barriers to trade. Americans are paying both those "seen" costs in the form of higher taxes, as well as the "unseen" spillover costs—known as "deadweight loss" in economist lingo—created by the tariffs.

By the end of last year, after ramping up tariffs over the course of several months, the deadweight loss of Trump's tariffs totaled $1.4 billion each month, according to Mary Amiti, Stephen J. Redding, and David Weinstein, the three researchers.

"We find that the U.S. tariffs were almost completely passed through into U.S. domestic prices, so that the entire incidence of the tariffs fell on domestic consumers and importers," they concluded.

Evidence of broader, negative economic consequences of the tariffs blows a major hole in the Trump administration's big three economic arguments for its protectionist trade policies.

First, Trump has argued that the tariffs benefit the U.S. government because they are generating revenue that could be used to close the budget deficit. This is technically correct because tariff revenue does flow into the U.S. Treasury, but the billions generated by the trade war has not slowed the growth of the federal budget defict. In any case, if the tariffs are draining $1.4 billion out of the economy every month beyond the cost of the taxes paid by U.S. importers, it becomes even more of a stretch for Trump to claim that the tariffs are benefiting the country, its economy, or the federal government.

"Our results imply that the tariff revenue the U.S. is now collecting is insufficient to compensate the losses being born by the consumers of imports," the researchers conclude.

The second argument Trump has made for the tariffs is that they are needed to create leverage on other nations in order to negotiate better trade deals. Trump has explicitly credited the tariffs with helping negotiate the new United States-Mexico-Canada Agreement (USMCA), a more protectionist replacement for the North American Free Trade Agreement (NAFTA), and has made it obvious that he believes tariffs on Chinese goods will pave the way to a new trade deal with China.

But Amiti, Redding, and Weinstein found "little evidence of such an improvement in the terms of trade." One of the main points of contention in the Trump administration's efforts to reach a trade deal with China has been the supposed theft of U.S. intellectual property by Chinese firms, but even if a future trade deal resulted in the Chinese paying an additional 25 percent in royalties for U.S. intellectual property, it would take three years of payments to make up for the damage inflicted on U.S. companies by the first 11 months of Trump's trade war.

Finally, Trump has claimed that tariffs will help resurrect American manufacturing jobs and prevent further offshoring of blue collar work to cheaper labor markets in Mexico, China, and elsewhere.

But even if the trade war could bring back 35,400 manufacturing jobs—equal to the number of American steel- and aluminum-producing jobs lost in the past decade—the deadweight loss to the economy would be about $195,000 per job, "which is almost four times more than the annual wage of a steel worker," the trio concludes.

An economic white paper is unlikely to sway Trump's opinion about tariffs—he's the Tariff Man, after all—but this analysis is the most comprehensive summary yet of the ongoing costs of the White House's misguided protectionism. More than a year after Trump assured Americans that his trade war would be "good, and easy to win," the data strongly suggest otherwise.

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  1. My company is pivoting manufacturing to Mexico and Egypt over Trump tariffs. Also, over the last five years or so, China has become increasingly difficult to do business in, and more expensive.

    Their regulatory environment is becoming onerous and they’re also increasingly hostile to foreign businesses.

    Here’s a channel that gets into my feed about the changes occurring over the last few years in China.

    It’s a tough call, but Trump tariffs may only be accelerating the inevitable.

    1. I can’t fault him for trying. I only hope the net result is successful.

      I hope the changes your company is making pan out.

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    2. Egypt. Good luck with that.

      1. Already there, and have been for years. We’re just increasing the footprint.

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  2. I don’t trust Reason to accurately report on this issue anymore than I have come to trust them on illegals and border security. They have lost an real,credibility in this area.

    1. Go back to then.

    2. There’s no doubt that Reason has conducted itself such that its credibility should not be presumed.

      However, ENB has done a great job with the Florida human trafficking hoax and Robby, at least on his Tucker Carlson appearances, has comported himself well on hate hoaxes.

      This issue? We should not overlook all the dead-weight occasioned by burdens of the administrative and regulatory state. We also should not overlook at all of the dead-weight wrought by the MIC and maintenance of Empire. Those things are crippling the economy as, by definition, the salaries and benefits of the ruling class mandarins, and the payola given to defense contractors, lobbyists, NASA nerds, surveillance, and the like all constitute spectacular misallocation of resources.

      Where Trump has failed, miserably I might add, is in his failure to drain the swamp and his failure to rein in the Empire.

      1. To be fair, he really hasn’t tried very hard on those fronts.

    3. What issue of trust could there possibly be on tariffs? Tariffs have been a settled topic for economists for two hundred years. The people who support them are (1) economic ignoramuses and (2) people who can use state coercion and the support of the ignoramuses for rent seeking. The only issue of accuracy here would be in just how much damage they are causing, or exactly how the damage is allocated.

      I am baffled by the morons here who think tariffs are a good idea. Supporting tariffs is as anti-libertarian as supporting government censorship, civilian disarmament, or the drug war. It’s not a continuum problem or a complex policy question.

      1. Revenue tariff. Get rid of the Income Tax. Worked for the 1st 135+ years of this country’s history.

        1. Revenue tariffs are small, Milo.

      2. I think one could argue that if the damage is relegated to China, who tariffs the living shoot out of everything, by the by, then that might be an acceptable outcome.

        I’m not arguing that’s going to be the outcome, I’m merely suggesting that there are many possible outcomes that might not be entirely unfavorable to the us economy.

        1. One can’t argue that (damage relegated to China), because that isn’t how tariffs work. When I mentioned allocation, I just meant the US-only damage. It is possible to temporarily benefit some subset of Americans at a much larger expense to other Americans.

          As for a revenue tariff, there are better ways to implement that, and less distortionary tax methods, and better non-tax methods for revenue collection. I don’t support any of them because I don’t worship at the altar of the state.

          1. But you’re certainly dogmatic.

    4. I don’t see how anyone can claim to be a libertarian and support anything other than unilateral free trade.

      1. That may be true, but that is absolutely not how China have been operating for the last 20-30 years. They have manipulated their currency in their favour. They have put extreme conditions on the goods they import for all over the world. They have stolen the technology of the companies which operate within the country. Piracy is freely exploited as is the workforce. Employees are paid poorly by world standard and quality is badly overlooked for quantity to the point that Chinese steel is next to pathetic.
        Many American companies moved to China to take advantage of a pathetically cheap workforce. Does anyone really believe that these companies should be able to lay off thousands of American workers and still be allowed to import their goods back into America and continue to make far more profit than building the goods in America purely because they can get away with paying Chinese works peanuts. That is unacceptable

    5. Last of the Shitlords, you belong on some paleoconservative website run by Pat Buchanan, not Don’t be mad that reason actually espouses libertarian positions.


  4. Regardless of what happens, Trump will be sure to declare it the greatest success in the history of success. Here’s a guy that judged his casino fiasco a success because he personally came out ahead by skimming management fees off the top and the fact that his investors lost their ass and he lost the opportunity to make a hell of a lot more money off a better deal matters not a bit. If you only look at the benefits and ignore the costs, any program can be judged a success – and that’s how government has always operated.

    1. Damn, you get Trump!

      Have the H&R conservatives tried to ban you yet?


  5. Hard times for farmers got tougher with President Donald Trump’s trade war. Now Midwestern farmers are filing the highest number of bankruptcies in a decade, according to a Wall Street Journal analysis of federal data.

    And farmers aren’t hopeful about this year.

    Twice as many farmers in Illinois, Indiana and Wisconsin declared bankruptcy last year compared to 2008, according to statistics from the 7th Circuit Court of Appeals, the Journal reported. Bankruptcies in states from North Dakota to Arkansas leaped 96 percent, according to figures from the 8th Circuit Court of Appeals.


  6. Don’t worry, be happy!!!

    The Trumpster is an expert in string theory and M-theory, and He is playing quantum-mechanics-based 11-dimensional chess. At the end of this Trumpian era, any day very soon now, the 11-dimensional chess strategy will be unveiled, the Lord Shiva will return, and other nations will PAY us to accept their goods and services!

  7. How much has it cost China?

    1. The only way to win a trade war is to lose less.

      1. +1 ^ if I follow you correctly… In a contest of cut-your-nose -off-to-spite-your-face, if you REALLY want to win, you start by NOT cutting off your nose!

        And let the other guy cut off his nose as long as he wants to, and don’t worry, be happy… He is NOT getting one over on you, by cutting his nose off more than you are!!!!

        1. You are the one commenter who understands me.

          1. Flaming, inspired geniuses arrive at the same conclusions!

            1. +1 ^ if I follow you correctly… In a contest of cut-your-nose -off-to-spite-your-face, if you REALLY want to win, you start by NOT cutting off your nose!

              And let the other guy cut off his nose as long as he wants to, and don’t worry, be happy… He is NOT getting one over on you, by cutting his nose off more than you are!!!!

              Well said! You are a modern day Adam Smith and you even speak in a language that is understandable.

      2. “Whe only way to win a trade war is to lose less.”

        Which means it’s costing China more.

      3. A trade war with China was never going to go in China’s favour. They export considerably more to America than the other way. Has anyone looked at the Chinese economy lately. It is on the verge of collapse and they have had to print billions of currency to stay afloat which will inevitably result in hyper inflation. This is a fight they could never win and they and the rest of the world knows this. It is only the Dems and their leftist entourage who actually believe China stands any chance in a trade war with America.
        Of course there will be some industries in America who will feel the pinch temporarily, but once China gives into the inevitable, their exports will pick back up.

  8. Wow! Trump’s tariffs cost 1.4 billion dollars per month. How much are the pre-Trump tariffs costing us? Betcha it’s a lot. How much? Maybe Reason can do that calculation.

  9. I notice no one has done the math yet. $1.4 billion per month, 12 months per year, comes out to $16.8 billion per year.

    In an economy with a value of roughly $20 trillion, this comes to less than one-tenth of one percent of the US economy (0.084%, to be exact).

    That would certainly fit the definition of the term “rounding error”.

    And Reason continues to wonder why the sky hasn’t fallen yet….

    1. This is why Trump is so confident in his strategy.

      For the US, trade with China is helpful but not essential to our continued economic growth.

      For China, trade with the US is absolutely necessary if the Mandarins of the Chinese Communist Party wish to avoid swinging from the lamp posts.

      China is exquisitely vulnerable to a trade war, which is why they are at the negotiating table right now.

      1. The private, non-crony economy is no where near 20 trillion per year.

        Those who count government spending are a few fries short of a happy meal.

        1. A Happy Meal Idiom and Ad Hominem. Two brilliant tactics for discrediting your opponent, without having to address his argument.

  10. What bothers me about this article is its selective accounting. The tariffs are offset at least eight times over by Trump’s other two economic initiatives, corporate and individual tax cuts. Eliminating them would raise the deficit (which Reason has opposed) or require higher corporate and individual income taxes (also opposed by Reason). The only alternative is to make deep cuts to entitlements, which Reason admits is a political non-starter right now.

    I’m guessing that what Reason’s editors are really upset about is that the tax system has become a little less Hamiltonian and a little more Jeffersonian. How is that a threat to liberty?

    1. That’s every article by Boehm.

      Point to costs, ignore benefits.

      Reason is a clown show. I come for the comments and my Two Minutes Hate.

  11. Meanwhile in the real world, US Real GDP rose over 3% in 2018 Trump’s economy.

    Real Gross Domestic Product (GDPC1)
    Q4 2018: 3.1 (+ more)
    Updated: Feb 28, 2019
    Percent Change from Year Ago,
    Seasonally Adjusted Annual Rate

    Remember when 3% growth rates were a fantasy that would never return again?

    Obummer: “”When somebody says like the person you just mentioned who I’m not going to advertise for, that he’s going to bring all these jobs back. … How exactly are you going to negotiate that? What magic wand do you have? ”

    Trump: Abracadabra!

  12. The tariffs also provide a level playing field and greatly benefit domestic industry and jobs, including industries important to national security. We should stop enriching a global evil communist empire, China, with our money.

    Perhaps these common sense reasons are why tariffs are SHOCKINGLY popular:

    “More than 9-in-10 conservatives support placing reciprocal tariffs on foreign imports to protect American workers and their jobs, a new poll reveals. . . Overall, about 80 percent of voters said they support Reps. Sean Duffy (R-WI) and Matt Gaetz’s (R-FL) “U.S. Reciprocal Trade Act” which would allow the president to impose the same tariff on a foreign import that another country has imposed on the same product from the U.S. ..

    Across party lines, reciprocal tariffs are extremely popular with voters. Roughly 75 percent of Democrats and 77 percent of swing voters said they supported putting tariffs on foreign imports at the same rate other countries put tariffs on U.S. goods.

    The reciprocal tariff policy is also supported across racial lines, with 83 percent of white Americans, 75 percent of black Americans, and more than 70 percent of Hispanic voters supporting the protective initiative.

    The pro-tariff views of the American electorate are in stark contrast to the billionaire donor class, which favors a global open markets policy of free trade that outsources American jobs to foreign countries as a result.”

  13. “There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods.” – Adam Smith

    “It will generally be advantageous to lay some burden upon foreign industry for the encouragement of domestic industry, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former. This would not give the monopoly of the borne market to domestic industry, nor turn towards a particular employment a greater share of the stock and labour of the country, than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax into a less natural direction, and would leave the competition between foreign and domestic industry, after the tax, as nearly as possible upon the same footing as before it.” – Adam Smith

    1. But what did Adam Smith know about markets?

      1. “But what did Adam Smith know about markets?”

        Probably nothing about markets in 2019….. unless the invisible hand transported him into the future.

        1. Be careful. David Ricardo was only slightly younger.

          1. To elaborate on that, one of the big changes since Smith and Ricardo described comparative advantage is that local economies’ material output has grown by about two orders of magnitude. Individual US states now produce a greater variety and quantity of goods than all of Britain could in 1800. There’s also very little variation in methods.

            Outsourcing can lower your regulatory overhead in the short term, but the regulators always catch up to you. The only long-term solution would be to open up a new frontier, and for that you’ll need colonists who can boot-strap entire supply chains in a place that’s never supported human life. The only people I’ve met who are qualified and *want* to do that are from the US, Canada and Australia. Probably not smart to put them out of work just yet.

  14. Pluses and Minuses, Pluses and Minuses. Nobody rides for free.

  15. This is another area where libertarians befuddle me with their knack of cutting off the nose to spite the face.

    I totally get wanting completely free, open and unencumbered trade.

    But when your trading partners don’t do it, and will just continue to take advantage by making your goods artificially more expensive*, doesn’t seeking to remove the encumbrances via negotiation just good common sense? What do we really think the outcomes would be if the US completely eliminated all its negotiating leverage while no one else did?

    It’s the same thing with immigration. Open borders and free movement of labor — sure. But it sucks if you’re the only one doing it and you have a large welfare state as the primary draw rather than work. How long will you be able to effectively implement libertarian policies with your new citizenry (voters) coming in dependent on suckling from the government teat?

    Libertarians — you have some great ideas — you just need to live in reality a bit.

    * Certainly structural changes to our economy could help like eliminating unions, over-regulation, etc.

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  17. til aluminum prices are 12% lower because of last years tariffs deal. is this true and is this bad?

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