With a new Trump administration coming into power next week, one of the biggest fears that businesses are waiting to hear about is tariffs. Unfortunately, there is a lot of misunderstanding regarding the effectiveness of tariffs to bring jobs back to America. There are many different economic studies that dispute this position. This article addresses the five myths that are most passed around.

Myth 1: Tariffs are paid by the county importing goods into the US.

Truth: Tariffs are paid by U.S. consumers.Studies show that there was a full tariff pass through for the Chinese tariffs. In other words, consumers paid the full price of the goods, as the price increases resulting from tariffs were collected by Customs and Border Patrol and passed on as higher prices. Other research shows that antidumping tariffs have also proven to be generally ineffective.

Myth 2: Tariffs protect manufacturing jobs in the United States

Truth: Tariffs can hurt manufacturing jobs.Economic studies show that there are no employment gains in manufacturing sectors that received tariff protection, but sectors that were targeted for retaliation shed jobs (because their exports dropped). Examples include American produced soybeans, poultry, beef, metal production, business services, vehicles, and others. In the case of washing machines, while these tariffs did result in the creation of ~2,000 final assembly jobs in the US, the estimated additional costs consumers paid for buying washing machines and dryers (which saw their prices increased despite not being tariffed) amounted to ~$817,000 per job.

Myth 3: Tariffs are good for US Exports

Truth: Tariffs Harm US Exports In today’s complex global supply chains, a small number of US manufacturing firms that also have plants overseas account for a disproportionate share of imports made by US manufacturing firms, and also receive significant exports from US firms. There is also strong evidence that countries that have seen increased exports to the US have done so by heavily increasing Chinese imports.

Further, tariffs hurt export growth. Many US manufacturers buy a lot of their components and inputs from China. Evidence shows that manufacturing industries that saw tariffs drive up their input costs or were targeted for foreign retaliation shed jobs. US manufacturing firms that saw the largest increase in tariffs on imported components displayed lower export growth.

Myth 4: Trade liberalization leads to lost American jobs

Truth: Trade liberalization leads to more America jobs. Economists report that the jobs created through greater exports stemming from trade liberalization more than outweighed jobs lost due to competition. Evidence also shows that one-third of the reported decline in manufacturing employment in response to trade liberalization was due to establishments changing industries (a subtle issue not adequately discussed).

Myth 5: Without tariffs, we will not be able to manufacture anything in the US

Truth: The US will manufacture the products they excel in already.Economistsreport that trade liberalization with China created winners and losers, with most of the job loss stemming from large US firms either closing plants or stopping manufacturing at facilities and shifting to wholesaling or research and development. They further report job loss due to trade liberalization was not driven by closure of firms. Also, studies show that trade is incredibly concentrated amongst a small number of firms that pay the best wages and are the most productive.

Perhaps the tariff question I’ve been asked about the most is “what are the inflationary impacts of a 60% China and 10-20% rest of world (ROW) tariff?” Answering that question is challenging, but the Bureau of Economic Analysis does provide us some useful tools in the form of the Supply Tables from the Input-Output Accounts (https://lnkd.in/eQdPji9). One table below is from the 71-industry breakout for 2023. Thoughts:

•This table reports domestic production as well as imports based for commodities on what the BEA terms “basic prices” to make them comparable. The sum of domestic production and imports represents what the BEA calls “total product supply”. I’ve isolated sectors with physical goods like agriculture products; forestry, fishing, etc.; mining, crude oil and natural gas extraction; and all parts of manufacturing.

•I’ve then calculated the percentage of the total product supply that is imported for each commodity type. Figures range at the high end of 82% for Apparel & Leather Products (NAICS 315 & 316) and 53% for Computers & Electronic Products (NAICS 334) to lows of 4% for Printing (NAICS 323) and 11% for Food, Beverage, & Tobacco (NAICS 311 & 312).

•Whether looking at all goods or just manufactured goods, the figure we arrive at is ~25% of total product supply is imported.

•Consequently, a 10% universal tariff represents a 2.5% cost shock to goods; this will be made worse because many manufacturers will respond to receiving tariff protection by raising their own prices—something previously reported in peer reviewed research (https://lnkd.in/gdTYqjDp).

Implication: the BEA’s Input-Output Account data provide a good sense of the magnitude of cost shock that goods will experience with universal tariffs. One challenge with looking at costs alone is that markups also need considered, and we don’t fully know how wholesalers and retailers will respond. Regardless though, this table is prima facie evidence that universal tariffs will be inflationary for goods. Anyone who is telling you otherwise either has a political motive or doesn’t understand basic economics.

In December, President Trump announced he will place 25% tariffs on all goods from Mexico and Canada on Jan 20 (https://lnkd.in/gK2y3cBk). Consequently, I wanted to get data published right away on the most affected types of goods (data sourced for 2023 from https://lnkd.in/gVJUngtW at the NAICS6 level). In the table above, I've compiled total imports from Canada and Mexico at the 6-digit NAICS level for 2023 and included the share of total imports this represents. Thoughts:

•The motor vehicle sector is disproportionately affected, with over $200 billion in imports affected. Those imports will now cost importers $250 billion. As dealer margins have fallen back to pre-COVID levels (https://lnkd.in/gcNxAwXk), this means that dealers won't be in a position to absorb higher costs. Consequently, this will cause inflation in motor vehicle prices, and potentially drive down sales as a result.

•70% of crude oil imports come from Mexico and especially Canada. As the EIA estimates 52.6% of the price of gasoline is due to crude oil, this suggests a 0.70 * 0.526 = ~37% increase in gasoline prices for gasoline made from imported crude oil.

•Other key imports are electronic products, various foods (though it's important to remember the vast majority of food consumed in the US is produced domestically), primary metals, and lumber.

Rob Handfield is the Bank of America University Distinguished Professor of Supply Chain Management at North Carolina State University, and Executive Director of the Supply Chain Resource Cooperative (http://scm.ncsu.edu/). Handfield is considered a thought leader in the field of supply chain management, and is an industry expert in the field of strategic sourcing, supply market intelligence, and supplier development.

Jason Miller is a professor of logistics at Michigan State University, and is a passionate educator who helps practitioners and students better understand industry trends through data. He does this by leveraging his decade of experience as an academic researcher and statistician to identify highly reliable data sources and process data such that they are more easily understood by those in industry (e.g., explaining the jargon, applying seasonal adjustments, transforming data to remove effects of inflation, etc.).