Trump Tariffs are ‘Bad’; Lighthizer is ‘Wrong’, WSJ Editorial Board Tells Us

The ‘trade war’ tariffs of 2018 – from steel to solar and to the massive $300 billion-plus in Section 301 tariffs targeting China were bad. Layoffs occurred at importers. Inflation rose. If this is true in the main, how can it be that inflation is now coming down, and companies can’t seem to find workers?

That big picture is irrelevant. The WSJ says Trump-era tariffs, kept in place by President Biden, are bad. Trump’s lead trade diplomat Robert Lighthizer, an advocate for tariffs, is wrong.

In an editorial board op-ed published Jan. 2, the WSJ focused on a handful of sectors, led by steel and its end-users.

“Employment in iron and steel mills and ferroalloy manufacturing, compared with when Mr. Trump announced his metal tariffs in March 2018, is up 800 souls, or 1%. Yet in the same period, employment in steel-product manufacturing from purchased steel fell by 1,600 workers or 2.8%,” the WSJ’s Editorial Board wrote. This is the brain trust of the paper. So this is the guiding light of how the newsroom views trade policies. The op-ed writers went on to say that these numbers revealed “what tariffs often do in real life, which is to rob Peter to pay some politically powerful Paul. In their earnings calls after nearly a year of Mr. Trump’s metal tariffs, steel makers bragged about record profits, while Whirlpool, Caterpillar and others lamented new costs. Ford pegged its annual hit at $750 million, and the profit-sharing checks sent to its factory workers would be 10 percent higher were it not for tariffs.”

The WSJ also called out Lighthizer, saying he was part of a political view that wanted to “socially engineer” economic outcomes. “Mr. Lighthizer praises the virtues of inefficiency,” the WSJ op-ed writers said, adding that his take on trade was a “drain on the productive economy” and led to lower living standards.”

The Rebuttal to the WSJ Editorial Board

Manufacturing wages are up in nearly all 50 states.

Anyone can take data and mold it to their view. Like a stock, what may look like a dud of an investment over a 12-month period beginning in January and ending the following January, may have garnered 50% gains if bought in March and sold in August. It all depends on timing and data points.

For wages, average weekly earnings rose in all but five of the 50 states from 2017 (pre-Section 301 tariffs) to 2019 (one year after tariffs were imposed), according to the Bureau of Labor Statistics (BLS).  The same holds for 2018 to 2019, with 45 states (including Puerto Rico in this case) seeing average weekly wage gains for production employees on manufacturing payrolls, BLS data shows.

The WSJ editorial shows a chart where manufacturing jobs drop like a rock beginning in 2001. CPA members will know that is the year China enters the World Trade Organization and manufacturing jobs begin moving there.

In April 2018, one month after the USTR announces Section 301 tariffs against China, the U.S. had 12.36 million people employed in manufacturing jobs. By August 2019, a year into tariffs, that number was 12.825 million. Numbers fell in 2020 and were 12.985 million active employees in manufacturing jobs as of November 2023, as the WSJ graphic from BLS shows.

Manufacturing employment data from 2020-2021 is heavily skewed to the negative due to the pandemic and government responses to the pandemic, which included record high stimulus spending, lockdowns, and furloughed workers due to public health fears.

Inflation caused by supply chain snafus, not tariffs.

The annual inflation rate, as measured by the Consumer Price Index, was 1.7% in February 2021 and rose to around 5% by June 2021. It peaked at around 9% in June 2022 and is now in decline. Why did inflation rise? It was not because of steel and aluminum tariffs or higher prices on Chinese goods. Most Americans felt inflation at the local gas station and in the grocery store. The U.S. is not importing oil from China, nor does the U.S. import beef, chicken and eggs from China.

New and used car prices rose because of supply chain issues out of Asia, not tariffs.

The National Bureau of Economic Research (NBER) said in September that “the rise in the inflation rate has been attributed to many factors. The U.S. response to the COVID-19 pandemic included a series of federal initiatives, notably the CARES Act and the American Rescue Plan, which collectively authorized roughly $5 trillion in government spending.”  These two programs contributed to strong consumer and business demand, leading to higher prices. And although the WSJ cited Ford’s complaint about tariffs, the bigger problem was its over reliance on Asian supply chains for computer chips used in automobile manufacturing. The NBER said supply chain disruptions also caused inflation in 2021 and 2022 and used the auto industry as an example of that. Auto production dropped from 11.7 million vehicles in July 2020, roughly the pre-pandemic rate, to less than 9 million in the fall of 2021, due to shortages of computer chips delayed due to lockdowns in Asia.

Unemployment Rates Fell.

On balance, U.S. unemployment rates across all sectors of the economy fell from 4.36% in 2017 to 3.67%, one year into Trump’s trade war tariffs.

The Ford investor call that the WSJ was talking about in its op-ed was temporary. Their CFO was talking to investors about what happened in that one year. But companies do not exist in such a short time period. Any company can lose a million dollars in one year, and make it all back and then some a year or more later.

As far as employment goes in the automotive manufacturing sector, the industry had 997.9 thousand employees nationwide in March 2018, rising to a record 1.008 million in March 2019. By March 2023, after three years of the worst public health crisis since the Spanish flu, supply chain disruptions, and labor strikes, the industry had a record 1.052 million workers, according to BLS.

Another sector that is constantly bemoaning tariffs and anti-dumping duties is the solar installation players. These include utility companies, construction companies, and solar installers – the kind that may be calling your home phone for a price quote on rooftop solar panels once a week.

 

Solar importers have long complained that tariffs would upend their business. It has not.

Solar installers and importers have said that the Section 201 solar safeguard tariffs, continued under Biden, would kill their business and ruin the prospects for solar adoption nationwide. According to the BLS, solar installers, a classic blue-collar job, earned an average of $45,230 per year in 2022, with job growth for the next 10 years seen rising by 22%. Hardly a sector of the solar industry facing a death spiral due to tariffs. Solar manufacturing jobs are expected to grow by around 9% up to 2032.

CPA’s Chief Economist Takes on the WSJ

In a series of social media posts on Elon Musk’s new Twitter, now known as X, CPA’s chief economist Jeff Ferry took the WSJ ed team to task saying that the 2018 tariffs stimulated key domestic sectors, created jobs, investment & growth in steel, solar panels, washing machines and other sectors as well.

Even the International Trade Commission noted this in a landmark report on the Section 301 and Section 232 steel and aluminum tariffs in March 2023.

“That ITC report showed the 25% steel tariff raised domestic steel prices by just 2.47%. The tiny price impact of the Section 232 tariffs is a big reason why Biden kept them,” Ferry said. “Tariffs in a competitive market have minimal impact on prices over time.”

The WSJ went after washing machines, preferring they be made in Mexico instead.

“The Editorial Board tells us that washing machine prices rose 11% in 6 months after the tariffs, but they don’t mention that in the next 18 months, they fell 14%. Short-term price increase was due to policy concerns and inventory building. Once those concerns passed, prices fell to 2016 levels,” he said. “Economists who wrote studies on washing machines never wrote another one after that to explain why prices fell. Academic economists know nothing about real industry. They focus on statistical contrivances, getting published and toss in a Trump insult to please the faculty lounge.”

“The bottom line is that our economy grows by increasing production and productivity of all 157 million workers. That happens when high-productivity industries grow. Instead of averaging down to wages in poor nations, the U.S. must average up to good-paying industries like steel, autos and more. Trump achieved good results with broad tariffs. Biden is trying to get similar result with tax credits in the Inflation Reduction Act and in the CHIPS and Sciences Act he signed into law. Trump’s recent idea to target specific sectors like electronics and generic drugs for domestic growth is also an excellent idea.” – Jeff Ferry, CPA’s chief economist.

Trade wars are often presented as a conflict between two countries, but it is not, writes Matthew C. Klein and Michael Pettis in “Trade Wars are Class Wars”.  They describe a trade war as the battle between owners of financial assets versus ordinary households, in this case, ordinary Americans are those who are not 5% owners of Caterpillar and Walmart shares. Trade wars pit the very rich and economically powerful versus everyone else, they wrote.

“Rising inequality has produced gluts of manufactured goods, job loss, and rising debt. It is an economic and financial perversion of what global integration was supposed to achieve. For decades, the United States has been the largest single victim of this perversion. Absorbing the rest of the world’s excess and savings at the cost of deindustrialization,” they wrote, calling it America’s “exorbitant burden.”

From 1776 to 1973, the U.S. was a production-led economy. Since 1973, it has been a consumption- and finance-led economy with the dollar our number one export. Trillions from around the globe are moved into U.S. real estate from Miami luxury apartments to master limited partnerships that own data centers and telecommunications towers, let alone stocks and bonds.

Globalization has increased profitability for big multinationals like Ford by driving wages down thanks to production shifts to Mexico. “Trade with low-wage nations or trade predators selling us subsidized goods at below-market prices is not free trade at all,” said Ferry. “It is America allowing itself to be exploited, driving down worker wages, increasing inequality, and adding to political polarization. Tariffs, applied to the right products and industries, can prevent these depredations.”