Study co-authored by UC Berkeley researchers shows costs of Trump’s trade war

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Researchers from UC Berkeley and other top universities released a study called “The Return to Protectionism” earlier this month concerning the costs and benefits of President Donald Trump’s 2018 trade war policies.

The Trump administration claims that the trade tariffs protect American jobs, technology and intellectual property from foreign competitors. According to study co-author and campus doctoral student Patrick Kennedy, however, Trump’s trade war is “the most significant pendulum swing away from free trade” since the Great Depression.

“For decades the United States played a leading role in breaking down barriers to international trade, but in 2018 that changed,” said Kennedy in an email.

The study shows that the total effects of the trade war are small, affecting less than one percent of annual GDP due to the U.S.’s size and lower dependence on trade. There are “winners” and “losers” from Trump’s policies, however, according to Kennedy. He elaborated that producers protected by tariffs “gain” while consumers and businesses buying imported goods pay higher prices.

According to the study, imports from foreign countries declined by 31.5 percent while U.S. exports dropped by 11 percent because of foreign retaliation tariffs that placed similar tariffs on U.S. imports. The study added that total losses to U.S. consumers and industries due to higher costs of imports totaled $68.8 billion —  0.37 percent of the GDP.

Even after accounting for higher tariff revenue and gains to protected industries, the U.S. experiences a net loss of $7.8 billion, which is 0.04 percent of the GDP, according to the study.

“We measured changes in import and export sales volumes as well as changes in prices,” Kennedy said in an email. “We then used an economic model to estimate changes in wages and the cost of living, which vary geographically and by sector.”

According to the study, the tariffs favored U.S. industrial sectors such as steel and aluminum in “politically competitive counties,” but these benefits were offset by losses from retaliation tariffs. Kennedy added that consumers and businesses pay higher prices when buying imported goods.

It is estimated that the most negatively impacted workers are located in “very Republican counties,” Kennedy said. These workers are affected by higher industry input prices, consumer prices and retaliation tariffs.

“We did find that U.S. tariffs disproportionately targeted sectors that are geographically concentrated in electorally competitive counties, especially in states that are likely to be pivotal in the Electoral College in the 2020 elections, like Michigan, Ohio, Wisconsin, and Pennsylvania,” Kennedy said in an email. “That fact does not prove the theory that the trade war was motivated by electoral incentives, but it is consistent with that theory.”

Yao Huang is the lead research and ideas reporter. Contact him at [email protected] and follow him on Twitter at @Yhoneplus.