Roundup: Tariffs, Jobs and the U.S. Trade Deficit


Wednesday, March 28, 2018

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?

Cargo ship

Thinkstock/Stewart Sutton

A tariff refers to a tax imposed by a nation on an imported good. Tariffs are among several types of trade barriers that nations can employ.

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?”
8-minute read


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”
14-minute listen


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”
7-minute read


How Does the Trade Deficit Work?

Image of foreign currencies

Thinkstock/alfexe

The full accounting of international trade reflects trade in assets in addition to goods and services.

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:

  1. 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.
  2. 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”
8-minute read


Additional Resources

For even more on these and related subjects, see:

ABOUT THE AUTHOR
Christine Smith 

Christine Smith is a content strategist with the St. Louis Fed.

Tagged christine smithscott wollamaximiliano dvorkincharles gascontradetariffstrade deficitjobsmanufacturing
Commenting Policy: We encourage comments and discussions on our posts, even those that disagree with conclusions, if they are done in a respectful and courteous manner. All comments posted to our blog go through a moderator, so they won't appear immediately after being submitted. We reserve the right to remove or not publish inappropriate comments. This includes, but is not limited to, comments that are:
  • Vulgar, obscene, profane or otherwise disrespectful or discourteous
  • For commercial use, including spam
  • Threatening, harassing or constituting personal attacks
  • Violating copyright or otherwise infringing on third-party rights
  • Off-topic or significantly political
The St. Louis Fed will only respond to comments if we are clarifying a point. Comments are limited to 1,500 characters, so please edit your thinking before posting. While you will retain all of your ownership rights in any comment you submit, posting comments means you grant the St. Louis Fed the royalty-free right, in perpetuity, to use, reproduce, distribute, alter and/or display them, and the St. Louis Fed will be free to use any ideas, concepts, artwork, inventions, developments, suggestions or techniques embodied in your comments for any purpose whatsoever, with or without attribution, and without compensation to you. You will also waive all moral rights you may have in any comment you submit.
comments powered by Disqus

The St. Louis Fed uses Disqus software for the comment functionality on this blog. You can read the Disqus privacy policy. Disqus uses cookies and third party cookies. To learn more about these cookies and how to disable them, please see this article.