Roundup: Tariffs, Jobs and the U.S. Trade Deficit
President Trump in early March signed proclamations intending to impose tariffs on steel and aluminum imports from certain countries. Since then, the subjects of tariffs, international trade, American jobs and more have been in the news.
In this space, we’re rounding up recent research from St. Louis Fed economists on trade and manufacturing, as well as resources from economic education experts.
The goal? Explain complex issues in an accessible way.
What Are Tariffs and Other Trade Barriers?
As a recent edition of Page One Economics explained, a tariff refers to a tax imposed by a nation on an imported good. This tax increases the price of the imported good, and it can give the competing domestic good a relative price advantage.
Tariffs are among several types of trade barriers nations can employ, said authors Scott Wolla and Anna Esenther of the St. Louis Fed’s Economic Education team. Others include:
- Import quotas: Limits imposed by a nation on the quantity (or total value) of a good that may be imported during a given period of time.
- Export subsidies: Government payments to a domestic producer that reduce production costs, enabling domestic producers to charge a lower price in world markets.
- Voluntary export restrictions: Self-imposed limitations on the number of products shipped to a particular country.
“Trade barriers, as the name might imply, are policies designed to make it more difficult to conduct international trade,” Wolla and Esenther wrote.
Check out Page One Economics, “Does International Trade Create Winners and Losers?”
What Is the Impact of Chinese Imports on U.S. Jobs?
In January 2017, St. Louis Fed Economist Max Dvorkin discussed his research into the impact of Chinese imports on U.S. jobs during 2000-07, a time when those imports were surging. In all, 800,000 manufacturing jobs in the U.S. were lost because of these imports, he found.
However, Dvorkin explained that a like number of jobs were created in different sectors. In addition, the cheaper imports led to an increase in buying power of $260 a year on average for every American for life, he calculated.
“I’m drawn to this subject because there are many important and exciting questions to answer,” Dvorkin said. “For example, who benefits from trade? Who loses? Are there gains or losses in the short run or in the long run? And what should we do about it?”
Listen to the Timely Topics podcast, “Chinese Imports, U.S. Jobs”
What’s Happening in the Manufacturing Sector?
“Manufacturing has been one of the nation’s largest and most productive sectors dating back to the Industrial Revolution, and that remains true today despite a long-term decline in employment,” wrote Regional Economist Charles Gascon and Senior Research Associate Andrew Spewak in a recent Regional Economist article.
They dug into national and regional trends in the advanced manufacturing sector—industries in which research and development spending exceeds $450 per worker and at least 21 percent of jobs require a high degree of technical knowledge. Some of their findings include:
- Advanced manufacturing accounts for 7 percent of private output and 60 percent of the dollar value of U.S. exports.
- In the Eighth Federal Reserve District (the Midwestern region served by the St. Louis Fed), advanced manufacturing has a relatively large presence, mostly due to a high concentration of auto manufacturing employment.
- Goods made from advanced manufacturing are a larger component of trade for the Eighth District than nationally.
Read The Regional Economist, “Advanced Manufacturing Is Vital across Nation, Including Eighth District”
How Does the Trade Deficit Work?
In 2017, the total U.S. trade deficit in goods and services amounted to about $568.4 billion, meaning that imports exceeded exports. In 2016, the total trade deficit was $504.8 billion. This is according to the latest data from the U.S. Bureau of Economic Analysis.
“People often assume that a surplus is good and a deficit is bad, but it is not that simple,” wrote Wolla in another issue of Page One Economics. To understand the trade deficit, he said, it’s helpful to look at the accounting of international trade.
All of our country’s transactions with the world are summarized in a balance of payments with two key components:
- Current account: Mostly reflects U.S. trade in goods and services with other countries, both exports and imports. This is where a trade deficit appears.
- Capital and financial account: Reflects all of the United States’ trade in assets with other countries. This includes investments in real assets, like foreign investment in a U.S. factory (or vice versa). It also includes financial assets, such as stocks, corporate bonds and government bonds.
Wolla explained that the balance of payments must balance—a deficit in one of the accounts must be offset by a surplus in the other account. “(D)ollars that leave the U.S. to buy foreign goods, services, or assets find their way back to the U.S. economy to purchase U.S. goods, services, and assets,” he said.
Explore Page One Economics, “International Trade”
For even more on these and related subjects, see:
- The Regional Economist: District's Patterns in Imports and Exports Sometimes Differ from Nation's
- On the Economy: Trade in the U.S., Eighth District by Commodity
- Federal Reserve Economic Research (FRED): Trade Balance: Goods and Services, Balance of Payments Basis
- FRASER Digital Library: Trade Expansion Act of 1962 and Trade Act of 1974
This blog explains everyday economics, consumer topics and the Fed. It also spotlights the people and programs that make the St. Louis Fed central to America’s economy. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.