Tariffs have all kinds of negative effects. They collect tax revenue, but they can shrink the economy. And if the economy shrinks enough, that cuts income tax revenue (as people’s income falls) and cuts capital gains tax revenue (as stock and asset values fall), which can offset the revenue raised by the tariffs. So tariffs may not even cut the budget deficit.
Bloomberg News reports on how tariffs are harming manufacturers in the news article “Trump’s Tariffs Aimed at Reviving Manufacturing Are Doing the Opposite“:
President Donald Trump’s signature trade policy is threatening to backfire by upending other top priorities: the revival of US manufacturing and the American Rust Belt.
In Illinois, Trump’s tariffs prompted a compressor maker to delay a key equipment purchase after an ambitious factory revamp. Rockwell Automation Inc., a Wisconsin-based producer of factory tools, says some manufacturers are putting projects on hold because of uncertainty over costs and future demand. Snap-on Inc. is seeing similar hesitancy among car mechanics.
The warnings underscore the rising worry that turbulence from Trump’s trade wars will smother the progress US manufacturers have already made revving up American factories. Manufacturing payrolls fell by 8,000 last month, the most this year, according to the Bureau of Labor Statistics….
In the US, perhaps nowhere is the anxiety higher than in the Midwest, which is still home to the nation’s highest concentration of manufacturing employment even after bleeding jobs early this century from the rise of offshoring.
“Overall, it is going to be a drag on the US economy,” said Gus Faucher, chief economist for PNC Financial Services Group in Pittsburgh, calling the tariffs a tax that will raise prices. “In particular, it’s going to be a drag on the Midwestern economy.”
On-again, off-again levies on imported components and machinery — as well as retaliatory duties imposed by other countries — have injected volatility into supply chains, raised costs, hurt exports and chilled investment.
US factory activity contracted for a third straight month in May…a respondent in the electric equipment, appliance and components business who said the duties have created supply-chain disruptions rivaling those of the pandemic.
Tariffs result in increased costs to manufacturers for the raw materials and inputs they need to manufacture their products. Economists warn that tariffs shrink factory output when they apply to raw materials and components used by factories.
For example, tariffs on steel wipe out more jobs than they save, because “steel is produced by a tiny sliver of the economy, but used as an input by a much broader swathe of manufacturers,” notes Justin Wolfers, an economist at the University of Michigan.
President Trump recently raised tariffs on aluminum and steel from 25% to 50%. That may wipe out many jobs in the auto industry, construction, and tool and machine industries, which rely on steel as an input in production. President Trump should create exclusions to those tariffs for automakers so that they can continue to produce autos for a reasonable price. If he doesn’t, thousands of jobs will be lost in the auto industry.
Steel and aluminum tariffs have a history of wiping out more jobs than they save: The steel and aluminum tariffs Trump imposed back in 2018 shrank employment by 74,000 jobs, wiping out 75 times more jobs than they saved.
