Federal Reserve Report: Tariff Increases Led to Reduction in Manufacturing Employment

Although tariffs were imposed to protect American factories from China's unfair trading practices, the import protection was overshadowed by the higher input costs tariffs created, a new report from the Federal Reserve says. The report estimated that the industries most exposed to tariffs had a reduction in manufacturing employment of 1.4 percent compared with companies with low exposure to tariffs. Retaliatory tariffs also contributed to the drag on factories, the report found.

However, the reported noted that this is a short-term effect, and if firms adjust their supply chains to avoid Section 301 tariffs, U.S. factories could benefit -- though if production moves to Thailand and Vietnam, the effects could be muted. “Our results suggest that the traditional use of trade policy as a tool for the protection and promotion of domestic manufacturing is complicated by the presence of globally interconnected supply chains,” the authors wrote.