Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector

33 Pages Posted: 13 May 2020

See all articles by Aaron Flaaen

Aaron Flaaen

Board of Governors of the Federal Reserve System

Justin R. Pierce

Board of Governors of the Federal Reserve System

Date Written: December 26, 2019

Abstract

Since the beginning of 2018, the United States has undertaken unprecedented tariff increases, with one goal of these actions being to boost the manufacturing sector. In this paper, we estimate the effect of the tariffs -- including retaliatory tariffs by U.S. trading partners -- on manufacturing employment, output, and producer prices. A key feature of our analysis is accounting for the multiple ways that tariffs might affect the manufacturing sector, including providing protection for domestic industries, raising costs for imported inputs, and harming competitiveness in overseas markets due to retaliatory tariffs. 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.

Keywords: Manufacturing; Industry; Tariffs

JEL Classification: F13; F14; F15

Suggested Citation

Flaaen, Aaron and Pierce, Justin R., Disentangling the Effects of the 2018-2019 Tariffs on a Globally Connected U.S. Manufacturing Sector (December 26, 2019). FEDS Working Paper No. 2019-086
https://doi.org/10.17016/FEDS.2019.086 , Available at SSRN: https://ssrn.com/abstract=3600358

Aaron Flaaen (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and Constitution Ave., NW
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HOME PAGE: http://www.federalreserve.gov/econresdata/aaron-b-flaaen.htm

Justin R. Pierce

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.justinrpierce.com/

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