Vice President Mike Pence is visiting Minnesota on Thursday. According to the Associated Press, Pence will “talk with farmers and steelworkers about the status of a trade deal with Mexico and Canada.” He will extol the benefits of marginal changes to the 25-year-old North American Free Trade Agreement (NAFTA) for Minnesota’s dairy farmers and steel producers.
What the vice president will not address is the true impact of the Trump Administration’s trade policies: higher costs for Minnesota’s imports from abroad, lower prices for Minnesota’s exports, and a redistribution of income via tariffs.
Aggregate effects of tariffs
A tariff is a tax on imported goods. Like any other tax, there is a difference between who is responsible for collecting the tax and sending the proceeds to the federal government and who ultimately pays the tax.
The president touts the billions of dollars flowing into the Treasury from tariffs as revenue we are collecting from Chinese producers. This ignores the fact that Chinese companies raise their prices as much as they can to cover the cost of the tax. Most of the revenue ultimately comes from Americans who buy imported products, either consumers buying final goods or producers purchasing intermediate goods.
For example, a recent economic analysis concluded American consumers and producers bore virtually the entire burden of the tariffs enacted since 2017. Foreign producers passed through the entire cost of the tariff through price increases and retaliatory tariffs on American exports. The net effect was to reduce U.S. GDP by between 0.04 and 0.37 percent over the past two years.
That sounds like a small effect, and it is in the aggregate. That’s why we need to look carefully at the distributional consequences — that is, who gains and who loses from tariffs.
Redistribution via tariffs
According to the same paper, “The Great Lakes region of the Midwest and the industrial areas of the Northeast received higher tariff protection, while rural regions of the Midwestern plains and Mountain West received higher tariff retaliation.” This means that in Minnesota, the iron mining industry and steel producers gained from the tariffs by increasing the price of imported steel and making domestic products more competitive.
On the other hand, farmers were hurt by Mexican, Canadian and especially Chinese tariff retaliation. The price of soybeans, for instance, dropped 20 percent since last August as exports to China disappeared. Thus, the gains to iron mining and steel production are coming directly and indirectly out of the pockets of soybean farmers and export-oriented agriculture, in general.
Mr. Pence comes to Minnesota
It’s interesting that Mr. Pence is not visiting any manufacturers who use imported steel. That’s not surprising as they are another group that bears the burden of the tariffs. For instance, Scott Wine, the CEO and Chairman of Polaris, told CNBC that the Administration’s proposed increase in tariffs on Chinese imports will be “downright catastrophic in terms of impact on the company and employees,” and that “ultimately if this [trade dispute] was not resolved, we would have no choice but to move production to Mexico.”
The bottom line is that industries such as iron mining and steel production are being subsidized by directly and indirectly taxing everyone else in the American economy. The burden is especially heavy for farmers and others who rely on exports and manufacturers who used imported inputs.
What the vice president should during his visit is this: “My fellow Americans, I come to praise our administration’s policy of increasing taxes on one group of our citizens to subsidize another. Through our trade policies, we are redistributing income away from agriculture and manufacturing firms that rely on imported components and sending it towards mining industries and manufacturers that rely on domestic resources.” It’s not an applause-worthy statement, but it is the truth.
No I’m sure VP Pence will speak on a 400% increase in manufacturing jobs their 1st 2 years and the fact that lower and middle incomes are rising faster than expected. He might also throw the 3+% GDP growth,deemed impossible by Obama, as a finisher.
So much deference should be provided to our dear president. I’m sure he would have been a steady and capable hand if he were elected in 2008. Meanwhile, income disparity is growing, China and North Korea are repeatedly calling his bluffs, and he can’t even pass an infrastructure bill, or anything of importance.
“No I’m sure VP Pence will speak on a 400% increase in manufacturing jobs their 1st 2 years . . .”
If he does, he will be lying as badly as his boss.
According to the Bureau of Labor Statistics, in January 2017 (the onset of the Trump regime), there were 12,368,000 manufacturing employees in the U.S. The preliminary estimate for April of 2019, there were 12,838,000 manufacturing employees.
It’s been a long time since I took math, but I don’t think that’s a 400% increase.
Bureau of Labor statistics show a 400% increase in manufacturing jobs in Trump’s first 2 years compared to Obama’s last 2 years. Look it up. Hourly wages average at an all time high of $27.77 per hour.
If there were a 400% increase, that would mean that there are close to 50 million people employed in manufacturing. The rate of increase may have increased by 400%, but the actual number of manufacturing jobs has increased by 3.8%. If I recall my math classes, 3.8 < 400.
Again according to the Bureau of Labor Statistics*: real average hourly earnings (i.e. earnings adjusted for inflation) for all employees decreased 0.3 percent from February to March 2019.
*It's a real thing, with a real website. Check it out!
I’m glad you made this clarifying comment Joe Smith because based on your first comment I was inclined to give you the benefit of the doubt.
A 400% increase in NEW manufacturing jobs biennium over biennium is quite different than saying there are 400% more manufacturing jobs now than 2 years ago.
The latter would indeed be an impressive accomplishment (and, it must be said, an appropriate use of the oft-abused multiple of 100 in percentage terms). The former of course is simply what people who work in finance call “fun with finance”
I don’t mean to diminish a net increase in manufacturing jobs at all, dear readers of the comment section. Please do not misunderstand me. It is simply that giving a 400% figure without any nominal real figures is an exercise in decontextualization masquerading as a data point. See Mark Twain for further elucidation…
Those farmers are really making a killing too. But I didn’t see Pence stop and talk with any farmers. He doesn’t enough courage to give a farmer an honest account of his administration’s policies.
It’s rich that you want to quote government statistics when the administration you support has a meltdown over the intelligence regarding Russian interference.
Hi Joe,
I looked up the data. In January of 2015 (two years before Trump took Office) there were 12,295,000 manufacturing employees in the US. Four years later in January of 2019, there were 12,826,000 manufacturing employees in the US for a difference of about 531,000 employees, a 4.3% increase over 4 years previous.
Other than a slowdown in growth in 2015 and 2016, any other 4 year period of Obama’s Presidency shows similar growth after the manufacturing sector started to recover in early 2010.
So, to get back to RB’s point, how do you calculate 400% growth?
The same way the current occupant calculates his golf score.
Smoke and mirrors, Mr. Smith, smoke and mirrors. We’ve had 400% job growth in much the same way Mr. Trump is a billionaire and the most popular President we’ve ever had – it’s true only if you listen to and/or watch a rather narrow range of media outlets which, at best, cherry-pick factoids from a larger context.
The relevant quote in Professor Johnson’s piece is: “Thus, the gains to iron mining and steel production are coming directly and indirectly out of the pockets of soybean farmers and export-oriented agriculture, in general.” There are states where that might be viewed as an overall good thing, but I don’t think Minnesota is one of them – there are far more people employed in agriculture in Minnesota than are employed in iron mining and steel production, and my hunch is that the wages of agricultural workers are not seeing dramatic increases.
Except for the use of executive power (as opposed to Congressional action), presidents generally have very little to do with the economy’s performance. Congress, at least for the time being, still controls the purse strings. Tariffs imposed – or rescinded – by executive order are among the exceptions to that general rule. On balance, Professor Johnson’s conclusion seems spot-on: Mr. Trump is favoring some groups of workers over others.
INFRASTRUCTURE. INVESTMENT. EDUCATION.
This is what MN really needs. Manufacturing jobs are not a panacea, as the manufacturing jobs we want are gone forever with the de-fanging of unions and the compromises of the UAW et.al. in order to keep GM afloat.
We need afordable housing too Joe.
Don’t think welders will ever be able to amass the lifestyle a 1960 union man (or woman) could get making lawnmowers, grain handling equipment or washing machines.
btw- you are anti-union aren’t you? Trump has not been supportive of worker’s rights or their basic right to bargain. Trump is not a hero to the working stiff. Do people really know that, or are they simply mad at the Dems?
3+% GDP growth ?
2017—2.2% (equaled or exceeded 4 years in Obama admin)
2018—2.9% (same as 2015)
2019— ???
https://www.thebalance.com/us-gdp-by-year-3305543
But wait, weren’t we told 6%…
….On Wednesday, Trump told reporters that he expects to see a 6% annual growth rate. That might not sound like a wild number, until you consider that 6% more than doubles the 30-year average rate of 2.5%. …
http://fortune.com/2017/12/07/trump-us-gdp-growth-rate-economy-6-percent/
So right now, Trump is doing no better than average.
Those darn facts….
Fox News headline: Trump’s steel tariffs cost US consumers close to $900,000 per job, analysis finds.
https://www.foxbusiness.com/economy/trumps-steel-tariffs-cost-us-consumers
An increase of 4,000 steel manufacturing jobs so far across the US, with a maximum of 8,500 possible down the line.
By the way, the steel plant he visitedis foreign-owned. Gerdau is a Brazilian company, just because the local operation has “Gerdau Ameristeel” as the name doesn’t mean it’s an American-owned company. Puzzle out the ramifications of that.