President Donald Trump’s most recent claim that imposing tariffs will bring manufacturing back or support American jobs is without merit. It’s not only false, it’s deceitful. It may sound good, but it won’t deliver on the promise long-term.
For now, President Trump has suspended the 25% tariff on goods from our top trade partners — Mexico and Canada — that are under the purview of the United States-Mexico, Canada Agreement. However, global tariffs still loom, for aluminum and steel, agricultural products and foreign cars. No doubt all these tariffs will be revoked at some point. But the damage will continue.
We must understand the difference between realities and perceptions and separate facts from fiction. As U.S. residents, we will pay for the tariffs our country imposes.
Consumers who purchase imported goods will be the losers: We will pay for the imposed tariffs through the higher cost of imported products. Exporters do not absorb the entire cost of tariffs. As existing experiences suggest, sellers of domestically produced products that use imported components will increase their prices. However, this is only a fraction of our loss, and we stand to lose much more.
The cost of products manufactured in the United States, and the price of imported goods will increase. We also will not increase our domestic production and job creation. Plus, tariffs provoke retaliation, which will hurt U.S. exporters.
The U.S. dependency on foreign trade and imports of goods began with deindustrialization, a process where goods and services are produced in countries with lower labor costs. The consequence is that manufacturing decreases in the country that sends its manufacturing abroad. While this started in the U.S. many decades ago, it significantly increased in the 1960s. The U.S. has maintained a trade deficit since the 1970s, partly due to deindustrialization.
We need to understand that imported products are not all consumer goods. A higher proportion of goods we import are intermediate and capital goods. (Intermediate goods are partially finished goods; capital goods are machinery and equipment for the production of domestic goods.)
Indeed, trade — mainly imports of intermediate and capital goods — supports our goods production. Based on the latest information, the proportion of capital and intermediate goods imported to the U.S. is approximately 50% of total imports; consumer goods account for 36%.
It is not an exaggeration to say that many U.S. jobs in the production sector are saved through foreign trade and importing intermediate and capital goods. It is helping to keep American jobs, not the other way around.
Looking closer into the U.S. economy, we find that manufacturing supply chains have transformed over the past 20 years, owing to relocating some labor-intensive tasks — such as parts and component manufacturing — to countries with low labor costs. This globalization of supply chains, better known as “offshoring,” tends to rely on producing manufactured goods (most intermediate inputs) abroad. The intermediate inputs are commonly manufactured by either a foreign affiliate or an independent supplier, then imported back to the U.S. for final assembly.
Canada has the highest proportion of imports of intermediate and capital goods to the U.S. More than 17% of intermediate goods we import come from Canada. Its share of the capital goods we import is more than 33% of all capital goods imported to the U.S.
Economic changes in an economy are based on reality and often go back to a much longer history of change and restructuring in that economy. Claiming that tariffs will support American industries and jobs is empty and unfounded.
Looking ahead, the countries’ tariff retaliation and resulting conflicts will also cause a broader and more profound cost of disagreements on global issues.
The U.S. needs to build consensus, rather than division and hate. We need a world that comes together to solve the existing and emerging problems that threaten life and humanity.
We cannot afford to start a senseless war with nothing to gain and much to lose.
Jamshid Damooei is a professor and executive director of the Center for Economics of Social Issues at California Lutheran University.