What Effect is the Trade War Having On the US Economy?

Matty-Sways

The Trade War could cost the US economy $167.75 billion in lost GDP if all tariffs announced thus far are enacted.

According to the Tax Foundation model, the tariffs planned and imposed so far by the Trump administration would reduce long-run GDP by 0.25 percent ($62.50 billion) and wages by 0.16 percent and eliminate 193,649 full-time equivalent jobs. Tariffs currently account for $86.13 billion in tariff revenues.

If the Trump administration acts on threats to place new tariffs on automobiles and parts and additional tariffs on products from China, GDP would fall by an additional 0.32 percent ($79.70 billion), resulting in 0.20 percent lower wages and 247,114 fewer full-time equivalent jobs. We estimate that these threatened tariffs would amount to a tax increase of roughly $109.63 billion.

Other countries have announced intentions to impose tariffs on U.S. exports. If these tariffs are fully imposed, we estimate that U.S. GDP would fall another 0.10 percent ($25.56 billion) and cost an additional 79,215 full-time equivalent jobs. Several countries have announced plans to impose tariffs in response to the U.S. tariffs on steel and aluminum.

If all tariffs announced thus far were fully imposed, U.S. GDP would fall by 0.67 percent ($167.75 billion) in the long run, effectively offsetting almost 40 percent of the long-run impact of the Tax Cuts and Jobs Act. Wages would fall by 0.42 percent and employment would fall 519,978.

The Tax Foundation concluded that Trump’s trade tactics — as well as retaliatory actions by other countries — will only continue to harm U.S. businesses and consumers.

“Economists generally agree that free trade increases the level of economic output and income, and conversely, that trade barriers reduce economic output and income,” the organization noted, adding that historically, “evidence shows that tariffs raise prices and reduce available quantities of goods and services for U.S. businesses and consumers, which results in lower income, reduced employment, and lower economic output.”

See the full analysis.

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