Tariffs Are Having a Bigger Effect on U.S. Manufacturing Than Initially Thought
The U.S. manufacturing sector contracted for the fifth straight month in December, with the monthly reading from the Institute for Supply Management (ISM) hitting its weakest point in more than 10 years. The purchasing manager’s index (PMI) fell to 47.2, a level we haven’t seen since June 2009, as global trade tensions continued to take a toll on the country’s manufacturers.
The news comes as two new papers indicate that U.S. tariffs on imported goods, particularly those originating in China, have had more of an impact on manufacturing and industrial output than initially believed.
Tariffs Have Contributed Toward a Manufacturing Slowdown
In one paper, Federal Reserve economists Aaron Flaaen and Justin Pierce show that the tariffs have not achieved their desired effect—that is, to protect against “what were deemed to be the unfair trade practices of trading partners”—but instead are “associated with relative reductions in manufacturing employment and relative increases in producer prices.”
Take a look below. Both industrial production and manufacturing employment were growing at a healthy clip throughout 2017 and most of 2018, despite the first wave of tariffs being imposed on solar panels and dishwashers in January of that year. Since the end of 2018, though, manufacturing has stalled as U.S.-imposed tariffs and retaliatory tariffs from its trading partners have hampered growth.
According to Flaaen and Pierce, the additional taxes “have not boosted manufacturing employment or output, even as they increased producer prices.”