The Trump administration's tariffs and growing trade conflicts so far are not enough to hurt the U.S. economy, but the efforts could result instead in job losses and higher prices on some goods for consumers, economists and trade experts say.
The Trump administration slapped tariffs on steel and aluminum imports from Canada, Mexico and Europe last week and threatened $50 billion in tariffs on Chinese goods, with a list of affected imports expected next week. China, meanwhile, said it will end any agreement with the U.S. if the tariffs are applied. China had agreed last month to increase its purchases of U.S. goods and services significantly.
While protections on steel and aluminum would ideally increase employment in those industries, Trade Partnership Worldwide estimates instead that more jobs would be lost. In late March, the group estimated that the metals tariffs, not including Canada and Mexico, could result in a net loss of 470,000 jobs after a year or two.
At the time, they said 18 jobs would be lost for every one job gained, and more than two-thirds of the lost jobs would be in production and low-skilled areas. They estimated 26,346 jobs would be added to the metals sector in the U.S., mainly in aluminum, but they estimated a loss of 495,136 jobs through the rest of the economy.
"We're looking at higher costs from steel and aluminum," said Laura Baughman, president of Trade Partnership, noting costs were rising on anticipation of tariffs. "As the higher costs work their way through the economy, the first thing companies do is look for other ways to cut costs." She said because of the tax cuts many firms have plans to hire more workers but in affected industries that could change.
"They're looking for other ways to cut costs," she said, but after a year or so workers would be let go. She said the industries affected by higher steel and aluminum prices include autos, tractors, appliances and everything made from metal, such as nuts and bolts.
"At 25,000, 30,000 feet, you don't see much, but when you get down on the ground, you see a whole lot, and there's a lot of unintended collateral damage," said Baughman. "As prices go up, people start to lose their jobs. Demand dries up."
Should the U.S. impose $50 billion in tariffs on China and China reciprocate with tariffs on $50 billion of U.S. exports, that would potentially result in the net loss of 134,000 jobs, according to Trade Partnership. Farmers would see a hit of 6.7 percent to their net incomes, and the farm sector would lose 67,000 jobs.
'I think it's vastly offset by the fiscal stimulus that's just taking effect right now," said Greg Valliere, chief global strategist at Horizon Investment. "There [are] going to be impacts. ... I think it hurts our trading partners more than us, except in the Midwest. You look at the Midwest. They've had drought. They have fear of tariffs. Grain prices are going down. Interest rates are going up. In general, this doesn't have a big impact on the U.S. economy except in the farm belt."
Bank of America Merrill Lynch economists, in a note this week, said the current "protectionist push" is similar to trade battles in the 1980s, which they said were costly and provided little benefit to the industries that were being protected. They said industries that were supposed to be helped by protections typically see little benefit after they end.
"Trade protection measures won't necessarily lead to a reduction in the trade deficit. This is partially because rising prices offset the decrease in quantities and partly because trade patterns adjust to avoid the trade barriers," the economists wrote. They said, "[I]n all cases American consumers were the biggest losers due to higher prices." In 1984, they noted that consumers paid an additional $53 billion due to import restrictions.
Europe, Canada and Mexico make up almost half of U.S. steel imports, and all three retaliated with tariffs on U.S. goods. Imports were limited but tariffs were not applied on metal from South Korea, Australia, Brazil and Argentina, a combined 14 percent of steel imports.
"The economic effect should be modest, but the move sends a modestly negative signal regarding the trade policy outlook," wrote Goldman Sachs economist Alec Phillips.
Phillips said inflation could tick up slightly as a result. "Although the steel tariffs represent a substantial escalation in trade protection, the total amount of trade affected is still fairly modest, at around $50 billion in imports. We estimate that these actions could raise core PCE inflation by around 3 [basis points]. By contrast, if the White House follows through with all of the tariffs it has proposed formally or informally, around $475 billion in goods would be affected, which could add around 15 [basis points] to [year over year] core PCE inflation if implemented around the same time," he wrote. Core PCE inflation was about 1.8 percent year over year in April.
"Looking ahead, while we continue to remain cautiously optimistic that cooler heads will prevail and we will avoid a full scale 'trade war,' the risks have increased," the Bank of America economists wrote.