With the U.S. presidential campaign heading into the home stretch, President Donald Trump will surely try to tout his record on economic issues. But the numbers don’t speak well of his policies. Unfortunately, the approach of his rival, Joe Biden, threatens to make some of the same mistakes.

Trump was elected in 2016 on a promise to restore American competitiveness, revitalize the flagging manufacturing sector, and reduce gaping trade deficits. But even before the pandemic, his trade war looked decidedly less than successful.

Despite a massive slate of tariffs that mostly began in the second half of 2018, the U.S.-China bilateral trade deficit barely budged, if at all:

The same pattern holds for the overall U.S. trade deficit, which hasn’t changed much since the end of the last recession:

U.S. imports flatlined in 2018 and 2019, but so did exports.

Nor did the U.S. factory sector enjoy a renaissance. Manufacturing production had been growing along with the overall economy before Trump unleashed his trade war, but it stagnated afterward:

Tariffs simply failed to do the job Trump and advisers such as economist Peter Navarro and trade representative Robert Lighthizer wanted them to do. They may have hurt China’s economy somewhat, but at the cost of also hurting U.S. consumers in the process. And they didn’t accomplish any of their primary stated purposes — cutting the trade deficit, increasing U.S. competitiveness relative to China, or restoring U.S. manufacturing.

Why not? Basic intuition says tariffs make imports more expensive, pushing domestic consumers to shift toward domestically produced goods. Exports don’t get taxed under the tariff, so they shouldn’t be affected. According to this logic, tariffs should make the trade deficit go down, and domestic producers should get a boost from all the consumer demand that gets pushed their way.

Theoretically, exchange rates might adjust to cancel out most of the effect of tariffs, but this doesn’t seem to have happened in the U.S. case — both the dollar’s overall strength and its strength against the Chinese renminbi changed very little after Trump’s trade war began.

So it’s technically possible that Trump’s tariffs worked as designed, but their effect was simply swamped by other, much larger forces buffeting the economy. After many years of tariffs, maybe we would have seen a slight positive effect on the trade balance and manufacturing.

But the likelier possibility is that tariffs hurt exactly the U.S. companies they were designed to help. The reason is that trade isn’t the simple two-way exchange Lighthizer and others seem to imagine, with each country making products domestically and then trying to sell them; instead, it involves many countries and a vast web of supply chains.

Tariffs don’t just make imported consumer goods more expensive; they also make inputs more expensive. U.S. companies use lots of imported goods to make things — raw materials, parts, and so on. Tax those inputs, and you make it more expensive for U.S. producers to produce. This is a big no-no in tax economics — it’s always better to tax final goods than the inputs used to make those goods. But Trump’s tariffs ignored this principle and taxed everything.

Economists recently tried to estimate just how much this effect has hurt U.S. exporters. Using detailed data from companies themselves, the economists analyzed which U.S. exports tended to drop more (or grow less slowly) after the tariffs went into effect. They found the products whose supply chains were taxed more heavily ended up suffering significantly worse.

Trump is unlikely to realize or admit that his favorite economic weapon is hurting the very companies it was intended to help. So it will fall to Biden, if he manages to win, to heed the lessons of economics and put trade policy on a sounder footing.

Unfortunately, Biden’s “Build Back Better” program includes provisions to force government contractors to buy American-made products. This has much the same effect as tariffs — protecting U.S. products from foreign competition, but making their inputs more expensive at the same time. It’s likely to raise costs and decrease competitiveness.

A much better approach is to focus on promoting exports rather than protecting the domestic market. Helping U.S. companies compete in foreign markets will address the trade deficit without damaging their supply chains. It will also potentially increase their productivity, by nudging them to succeed in more competitive international markets rather than sheltering them in an uncompetitive, cosseted domestic market. There are many policies a Biden administration could use to promote U.S. exports; none involve tariffs.

Tariffs, and other protectionist policies, aren’t suited to a world of complex supply chains. The idea that U.S. companies are best served by walling them off from the world needs to be relegated to the dustbin of history.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

(9) comments


once again noah, you are clueless on subject matter...when are you going to use FACTS for the stuff you write rather than lies


"The idea that U.S. companies are best served by walling them off from the world needs to be relegated to the dustbin of history." Yes. Along with the word "dustbin."


I am so tired of winning.

I heard a guy say that these things are so easy. Who would have thought it was so complicated?

I would have imagined just about anyone with a normal functioning brain would have thought so, but here we are.


If it is a "trade war" we should remember the fault of most who fight was - they are always ready for the last war, not the next war. And in trade technology and automation make the future. We need rules to retrain our workers and even to retire some with the wealth produced by technology that reduces production costs. That may be called "socialism" or worse, but it is just common sense.

Greg F

Gary...Turnip-head Trump is not ready for anything except donations from corporations and his friends so he can pay them back with cabinet positions. He fakes EVERYTHING...and makes any situation worse he is in. Ready for wars how...by taking troops out of Germany at the direct advice from every defense agency and Pentagon? Trade war....nope...not ready, never will be and is a shi**y negotiator as well....badly bungling it all. War against a 90+ plan that he tore up that was in place long before. Then he "played down" the virus (it's on tape he says that) and then yesterday says he "played up" the virus. Really, Gary, he is preparing us for a new president that (even if he's asleep) is miles better than that dotard that's in there now. Biden didn't get accused of raping a child. Biden did not pay off hookers nor has 100s of molestation cases pending. Biden doesn't have 1000s of lawsuits for nonpayment of contractors (many small businesses) he just doesn't feel like paying. Biden doesn't coddle dictators and push off allies our grandparents died to form. Biden speaks in clear sentences 99% of the time. Trump is illiterate and can't remember what he said the day before without contradicting it or bumbling around literally saying "in regard to the corona....er....um...um.....there's lots of names for that" because he's so brain dead he can't remember the name of the virus for this pandemic. Sheesh, Gary....what does it take to realize that Trump is a total boob and is in no way qualified to take out trash, much less lead anything? Hmm...


Not sure that I get your points. Trump is irrelevant to this process. He is so locked in the past and even with stuff that did not work in the past. The 1930 Depression was made worse with our trade policies. And tariffs. Obama and those before him knew automation was going to take jobs and "sold the jobs, before they went away." And China needed the business to get ist economy started. It was "win / win." But now China is losing to other lower cost markets now. Eventually we will all be automated and I wrote about what we need to do then. And that will be a revised economy with ways to give everyone incomes from the wealth that automation produces. It should not go only to investors and owners. Some countries will always have products we want or stuff they do better and that will be our world trade basis. With wind and solar and even nuclear, I do not see much of a market for oil as energy. Best to save it as a chemical stock. Natural gas can bee used in the same way. Even coal when we need it. The world has a trade future. Just not what some expect with trade wars. There will not be anything to fight over, except good people and what they can devise.


Yikes Gary. You are probably right, but I am not ready to hear that yet.

Greg F

against the advice of removing troops....DoD/Pentagon, all against that...Trump....why...let's weaken all of Europe. That's prep, alright. Prep for his buddy Putin to waltz in.

Greg F

The right wing extremists still don't and never will understand that the tariffs just put a tax on US, not them. WE paid the higher costs. They didn't pay it, just like Mexico didn't pay for an inch of a wall that wasn't ever needed in the first place.

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