Trump Trade Policy Gets Failing Grades

Donald Trump may believe his trade agenda is a success, but a new analysis gives his administration’s trade policies poor marks. The analysis finds the Trump administration’s policy of raising tariffs and misusing U.S. trade laws have harmed consumers, disrupted supply chains and failed to achieve objectives that are important to the United States.

“The Trump administration deserves failing grades in many areas of its trade policies,” according to a new analysis by the National Foundation for American Policy (NFAP). “A better trade policy would have focused on remaining in the Trans-Pacific Partnership (TPP) and confronting objectionable Chinese trade, investment and intellectual property actions in concert with allies and through the World Trade Organization.”

The new analysis graded the Trump administration’s trade policies in 6 areas, some of which, such as increasing the number of manufacturing jobs through trade actions, were key Trump campaign pledges in 2016. Below is a look at the grades from the study.

Stock Market – Grade: F 

Economists from the Federal Reserve Bank of New York and Columbia University concluded U.S. companies lost at least $1.7 trillion in the price of their stocks due to increased U.S. tariffs levied against imports from China in 2018 and 2019.

“We find that U.S. and Chinese tariff announcements lowered U.S. aggregate equity prices in our sample of close to 3,000 listed firms by 6.0 percentage points: a $1.7 trillion reduction in market value for our sample of listed firms,” according to the study by Mary Amiti, an economist at the Federal Reserve Bank of New York, and Sang Hoon Kong and David Weinstein, both economists at Columbia University. The study noted that 3.4 percentage points of the 6.0 percent decline in equity prices “can be attributed to the common effects” [effects that matter in general to companies] and “2.6 percentage points can be attributed to the differentially poor performance of firms importing from, exporting to, or selling in China.”

Cost to Consumers – Grade: F

“Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer,” wrote Adam Smith in An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776.

“Although Adam Smith was writing approximately 240 years before Donald Trump became president, Smith captured a central problem with the Trump administration’s trade policies – the interests of the consumers are usually sacrificed to the interests of producers, particularly producers in high profile industries in states considered politically important,” noted the NFAP analysis.

The cost of the Trump administration’s tariffs for the typical U.S. household is at least $831 a year, according to a 2019 analysis by economists Mary Amiti, Stephen J. Redding and David Weinstein.

Creating Manufacturing Jobs – Grade: D

The Trump administration’s tariffs on steel and aluminum reduced manufacturing jobs in the U.S. and, over the medium-term, did not bring more jobs to the steel sector.

“Tariffs on steel may have led to an increase of roughly 1,000 jobs in steel production,” according to economists Lydia Cox of Harvard and Kadee Russ of the University of California, Davis. “However, increased costs of inputs facing U.S. firms relative to foreign rivals due to the Section 232 tariffs on steel and aluminum likely have resulted in 75,000 fewer manufacturing jobs in firms where steel or aluminum are an input into production.”

At Mid-Continent Nail in Poplar Bluff, Missouri, for example, “The plant, the largest U.S. nail manufacturer, was hit hard by President Donald Trump’s steel tariffs,” reported the St. Louis Post-Dispatch in 2019. “Its sales fell by 60%, it’s been losing money, and employment fell from more than 500 last June to fewer than 300 now.”

Even steel jobs did not fare well. “With the expanded production, about 6,000 jobs were added to the U.S. steel industry’s workforce after tariffs started in 2018, according to the Census Bureau,” writes the Wall Street Journal. “By the end of 2019, though, those gains evaporated as steel demand and prices sank.”

Cost to Taxpayers – Grade: F 

A White House fact sheet listed among the president’s “accomplishments” providing $28 billion in taxpayer money to U.S. farmers harmed when other countries, particularly China, retaliated against the Trump administration’s tariffs by not buying U.S. farm goods. (Leading up to the election, the Agriculture Department sent an additional $14 billion dollars to farmers in key midwestern states.) The $28 billion provided to farmers through the Commodity Credit Corporation exceeded U.S. annual spending to maintain America’s nuclear arsenal, according to a January 2020 NFAP study.

Foreign Investment – Grade: D

“Foreign investment is largely seen as a catalyst for economic growth in the future,” notes Investopedia. “Foreign direct investments (FDIs) are the physical investments and purchases made by a company in a foreign country, typically by opening plants and buying buildings, machines, factories, and other equipment in the foreign country. These types of investments find a far greater deal of favor, as they are generally considered long-term investments and help bolster the foreign country’s economy.”

The evidence indicates Trump trade policies reduced foreign direct investment. “Expenditures by foreign direct investors to acquire, establish, or expand U.S. businesses totaled $194.7 billion (preliminary) in 2019,” according to the Bureau of Economic Analysis, which is part of the U.S. Department of Commerce. “Expenditures were down 37.7% from $312.5 billion (revised) in 2018 and below the annual average of $333.0 billion for 2014–2018.”

Rule of Law – Grade: D

The Trump administration undermined the rule of law in trade policy by misusing U.S. trade laws to impose protectionist trade measures, including under Section 232 of the Trade Expansion Act of 1962, to claim steel and aluminum coming from U.S. allies, such as Canada and Europe, represented national security threats. Approximately 3,500 companies have filed lawsuits claiming the Trump administration violated the law when it imposed tariffs on over $300 billion in imports from China under Section 301 of the Trade Act of 1974.

The Trump administration has worked against a rules-based international trading system, including disrupting the World Trade Organization’s (WTO) dispute resolution functions. “After President Trump imposed steep tariffs on Chinese imports in 2018, Beijing did what aggrieved trading partners typically do: It complained to the World Trade Organization,” writes Greg Ip, chief economic commentator at the Wall Street Journal. “Last month, a WTO panel ruled in its favor, declaring most of the U.S. tariffs violated the organization’s rules. The victory is hollow. The ruling is subject to appeal to the WTO’s top court, the Appellate Body, but that body isn’t functioning because the U.S. has blocked the appointment of new members.”

The administration has undermined the rule of law domestically in its attempt to deal with Chinese companies. Commenting on policy toward TikTok, the Wall Street Journal Editorial Page wrote, “Maybe the deal will protect national security as the Trump Administration claims, but it reeks of corporate cronyism that will damage the U.S. government’s credibility and reputation for free-market rules. . . . Economic statists may cheer all this, but it sure looks to all the world like U.S. government meddling that rewarded political allies.”

Trade Deficit – Grade: Incomplete/Not Important

Donald Trump said reducing the trade deficit, particularly with China, was a key objective of his trade policy, but few economists think that makes sense as a goal, since the statistic is not particularly important. “Trade deficits tend to be a sign of good things to come,” according to economist George Alessandria of the Federal Reserve Bank of Philadelphia. “Countries tend to run trade deficits when they are borrowing to finance productive investment opportunities. This is a way to shift world production toward more productive locations.”

The overall U.S. trade deficit in goods and services increased from $481.1 billion in 2016 to $576.8 billion in 2019. (The deficit is somewhat lower in 2020.) The NFAP analysis points out in 2016, the U.S. trade deficit in goods with China was $346.8 billion. In 2019, the U.S. trade deficit with China in goods was $345.2 billion, virtually unchanged.

A negative assessment of the Trump administration’s trade policies is shared by other observers of trade policy. “President Trump is the worst president on trade policy in at least 90 years,” according to Bryan Riley, director of the National Taxpayers Union’s Free Trade Initiative. The National Foundation for American Policy analysis concluded, “A better trade policy would focus on lowering barriers for U.S. exporters, reducing costs for U.S. consumers and producers, and working with allies and within multilateral agreements to combat unfair trade practices in China and elsewhere.”